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Virgin Galactic: Seems Like a Waste of Space
Stock Analysis & Ideas

Virgin Galactic: Seems Like a Waste of Space

Shares of potential aerospace giant Virgin Galactic (SPCE) have ebbed and flowed since going public three years ago. In the past year, though, SPCE stock has shed almost 70% of its value as it looks to launch its space tourism business this year. Though the stock could snap back later in the year, there are still plenty of red flags which call into question its long-term outlook. I am bearish on the stock.

Virgin Galactic Holding is a California-based spaceflight business that develops and operates spaceships for human spaceflights and development payloads.

Moreover, it is also involved in ground testing and maintenance of flights. The aerospace enterprise was founded by British business magnate Richard Branson through a reverse merger with shell company Social Capital Hedosophia in 2019.

Lackluster Fourth Quarter

Virgin Galactic disappointed the stock market with its recently reported fourth-quarter results. Investors were hopeful of a marked increase in customer deposits and a slowdown in its cash burn. However, the results showed quite the opposite and effectively widened the bear case.

Customer deposits came in at just $91 million at the conclusion of last year, compared with $83 million during the same period in 2020. That translates to just 9% growth, which is far from attractive, especially when the business is inching closer to commercialization. That number could increase substantially if it can successfully nail a few spaceflights. However, it’s tough to say where it might end up.

Furthermore, it burned $67 million in cash in Q4 and $235 million for the whole year. It expects its cash outflows to fall in the $75 million to $85 million range. Moreover, its losses are likely to increase in the short term as it launches its commercial operations later in the year.

It does, however, have enough cash for the next two years, considering how its balance got a massive bump after recent debt offerings.

On a more positive note, the expected launch of its commercial service is on track for the fourth quarter this year. Additionally, its fleet enhancement program is also on track and will be complete by the third quarter, significantly improving its durability and reliability.

Wall Street’s Take

Turning to Wall Street, SPCE stock maintains a Hold consensus rating. Out of 10 total analyst ratings, four Buys, three Holds, and three Sell ratings were given over the past three months.

The average Virgin Galactic price target is $16.14, implying 67.4% upside potential. Analyst price targets range from a low of $8.40 per share to a high of $36 per share.

What to Make of SPCE Stock?

SPCE stock has been an incredibly volatile investment in the past couple of years. The constant delays in its first human spaceflights had investors concerned over its long-term potential. Its cash burn continues to rise with every passing quarter, and its business model raises questions about its profitability.

It sells tickets for $450,000 a seat but has to incur at least $250,000 in costs per flight. Hence, its ability to break even for the foreseeable future is doubtful. Therefore the growing skepticism surrounding the stock is understandable.

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