Virgin Galactic Holdings (SPCE) is an aerospace company focused on developing vehicles for air and space. It also aims to offer regular spaceflight for tourists and researchers. (See Virgin Galactic stock charts on TipRanks)
The main value for SPCE comes from the highly specialized technology required to develop safe, efficient, and enjoyable spaceflight vehicles. While the company certainly faces significant competition from the likes of SpaceX and Blue Origin – led by titans of innovation Elon Musk and Jeff Bezos – Virgin Galactic is led by an inspirational leader of its own in Richard Branson.
The company recently successfully completed its first full-crew flight into suborbital space last week, proving that it has the baseline technical prowess necessary for further innovation into spaceflight capabilities.
However, while this first step was exciting – especially because it beat rival Blue Origin in sending its founder to space – there remain several challenges ahead for Virgin Galactic. Chief among them: raising the capital necessary to invest in additional research and development, marketing, scaling, and ultimately becoming profitable as a commercial business. (See space stock comparison on TipRanks)
Valuation Metrics
To raise money for this effort, the company is planning to issue up to half a billion dollars’ worth of new equity. Given that the company is bleeding cash to the tune of hundreds of millions of dollars per year and only has $616 million in cash on hand as of its most recent quarter, it is likely that such equity issuances will be a recurring event for the foreseeable future.
As a result, shareholders should expect to be significantly diluted while they wait for profitability to finally arrive at some point in the future. Furthermore, the company is already very expensive by virtually any metric, as it trades at nearly 700 times forward revenues on an Enterprise Value basis. At the same time, revenues are expected to grow rapidly, as near-1,000% growth is forecast for 2021 and near-2,200% growth is forecast for 2022.
Wall Street’s Take
From Wall Street analysts, Virgin Galactic earns a Moderate Buy consensus rating based on four Buy ratings, six Hold ratings, and one Sell rating in the past three months. Additionally, the average Virgin Galactic price target of $36.90 puts the upside potential at 20.5%.
Summary and Conclusions
Virgin Galactic operates in an exciting new industry that should see enormous growth in the decades to come. As an early mover in its space with the leadership of an accomplished visionary CEO, Virgin Galactic has a bright future. Furthermore, Wall Street analysts are generally bullish on the stock at its current price, implying that it could be a good time to initiate a long-term position.
That said, investors should keep in mind that commercial demand in the space industry is unproven and Virgin Galactic faces numerous technical challenges to overcome, not to mention significant competition from Blue Origin and SpaceX, among other likely competitors in the years to come.
The company has a lot of growing to do to justify its current valuation, especially given its apparent willingness to issue large amounts of equity to fund its ambitious research, development and growth goals. Therefore, investors may want to be cautious about overexposing to the stock, given that it remains highly speculative.
Disclosure: On the date of publication, Samuel Smith had no position in any of the companies discussed in this article.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
