Virgin Galactic (SPCE) keeps on burning money, as its space travel ventures have yet to generate any meaningful revenues. That makes me stay bearish on the stock.
Last week, the space tourism company announced that its spaceflights scheduled for September 2022 would be delayed, due to planned vehicle enhancement and modification to improve safety. (See Analysts’ Top Stocks on TipRanks)
“Our decisions are driven by detailed and thorough analysis, and we fly based on the most accurate and comprehensive data available,” said Michael Colglazier, CEO of the company. “Virgin Galactic vehicles are designed with significant margins for safety, providing layers of protection that far exceed loads experienced and expected to occur on our flights. The re-sequencing of our enhancement period and the Unity 23 flight underscores our safety-first procedures, provides the most efficient path to commercial service, and is the right approach for our business and our customers.
“We are deeply appreciative of the Italian Air Force Research Mission and grateful for their continued partnership with us in this test flight program.”
Virgin Galactic’s Friday announcement comes roughly a month after the company launched an inquiry into a potential defect of a supplier component, raising doubts about its ability to monetize its business model.
Meanwhile, Virgin Galactic losses are piling up, from $138.2 million at the end of 2017 to $644.9 million by 2020. Cash flows from operations and investments have also declined dramatically.
How has the company covered these losses? By issuing equity. Last July, the company issued $500 million worth of new shares. It may give many more shares to cover ongoing losses.
We know what new shares do to the equity value of existing stockholders; they dilute it.
Wall Street’s Take
Reflecting the concerns of additional share issues, Bank of America’s Ronald Epstein lowered his price target on the stock to $20 from $25 per share.
The analyst community continues to assign a Hold rating to the stock over the next 12 months. The average Virgin Galactic price target of $31.10 implies 61.9% upside potential.
Bottom Line
While Virgin Galactic’s space travel customers can wait, Wall Street cannot, as evidenced by the significant decline in the company’s shares on Friday’s regular trading session.
Neither can its insiders, who sold $255.4 million worth of shares in the last three months.
Still, some true believers see every news as a noise, rushing to buy the stock in the dips. Only time will tell which side is right.
Disclosure: At the time of publication, Panos Mourdoukoutas did not have a position in any of the securities mentioned in this article.
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