Virgin Galactic Holdings (SPCE) is a United States-based aerospace company developing human spaceflight for private individuals and researchers.
Shares of Virgin Galactic Holdings are very volatile having a 52-week range of $14.27-$62.80. I am bearish on SPCE stock. The revenue generated is not meaningful now, and the company is burning cash. (See Analysts’ Top Stocks on TipRanks)
Commercial Service to Launch in Q4 2022
In its third-quarter 2021 earnings report, Virgin Galactic announced a plethora of business highlights, including its first fully crewed spaceflight. The company stated that it is on track to start offering commercial spaceflight in Q4 2022.
Michael Colglazier, CEO of Virgin Galactic, expressed his optimism about the business prospects stating, “Demand for space travel is strong, and we’ve been selling seats ahead of the pace we had planned. This demonstrates the incredible market for our product and appreciation for the value of the unique experience we offer. It’s a pivotal time for the Company as we transition from a prototyping space innovator to the global, scaled, commercial operation we are becoming.”
He added that, “We are entering our fleet enhancement period with a clear roadmap for increasing the durability, reliability and predictability of our vehicles in preparation for commercial service next year.”
The focus on the enhancement of the products and services offered for space tourism and next-generation vehicles pose several risks for SPCE stock now. Virgin Galactic wants to become a leader in commercial space travel, which is both a very challenging task and a risky one.
Q3 Earnings
The third-quarter 2021 financial results of Virgin Galactic showed a miss on adjusted EPS and adjusted EBITDA.
Bloomberg consensus estimates of adjusted EPS and adjusted EBITDA were -$0.28 and -$63.8 million, respectively.
The actual numbers reported were an adjusted EPS of -$0.32 and adjusted EBITDA of -$68 million.
On the positive side, the revenue beat consensus estimates with $2.58 million compared to $1.83 million expected. Virgin Galactic has a strong balance sheet with almost zero debt and cash of about $1 billion. The broader fundamental analysis shows that for a public company with a market capitalization of $4.4 billion, revenues for 2018, 2029, and 2020 were $2.85 million, $3.78 million, and $238,000 respectively. Those are not meaningful numbers.
It is no surprise that Virgin Galactic is an unprofitable company, with reported losses widening over the past three years. For 2018, 2019 and 2020 net losses were $138.14 million, $210.94 million, and $273.04 million, respectively. Two red flags for the valuation and the viability of Virgin Galactic are the widening negative free cash flows and the stock dilution trend.
Since 2016, Virgin Galactic has been financing its business activities by selling common and preferred stock. In 2021, Virgin Galactic announced a $500-million share sale after a successful spaceship launch.
Valuation
SPCE stock has a price-to-sales ratio of 1,400x. The EV-to-forward earnings ratio is -12.1x. These numbers show how expensive SPCE stock is now on minimal revenue.
Wall Street’s Take
Virgin Galactic has a Hold consensus rating, based on five Buys, two Holds, and three Sells assigned in the past three months. The average Virgin Galactic price target of $29.20 implies 69.5% upside potential.
Disclosure: At the time of publication, Stavros Georgiadis, CFA did not have a position in any of the securities mentioned in this article.
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