Richard Branson-founded space tourism company Virgin Galactic Holdings Inc (NYSE:SPCE) is having another off day. SPCE stock is slipping, continuing a trend that started in mid-July. The company has delivered a litany of disappointing news since then, including a delay in its first commercial flights and a second quarter devoid of revenue. In addition, the company announced a new share offering that diluted the value for existing share holders.
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With Virgin Galactic shares now trading at less than half their mid-February levels, is now the time to buy?
Maiden Voyage of SpaceShipTwo Delayed
Other space startups like SpaceX are focused on traditional rockets that can deliver cargo and humans into orbit. Virgin Galactic is all about space tourism, giving passengers the thrill of zero gravity along with some eye-popping views of the Earth. These suborbital flights will last just several hours, with the total time of weightlessness being around six minutes. These limits make the design of Virgin Galactic’s vehicles slightly less complicated. And they make the flights more “affordable.”
At this point, the company has 700 customers who have paid deposits on a discounted price of $225,000 each for a seat.
That’s pretty impressive. Especially considering that Virgin Galactic’s SpaceShipTwo is still completing test flights.
One of the reasons for the slide in Virgin Galactic stock over the past month is the announcement that SpaceShipTwo’s first commercial flight is being pushed back until the first quarter of 2021. Given the safety concerns involved — and the fact that Richard Branson will be on that first flight — the caution is deserved. After all, a SpaceShipTwo crash during a test flight in 2014 ended in a destroyed vehicle and a dead pilot. Having something like that happen during a commercial flight would be catastrophic. But the delay did disappoint the market.
Q2 Earnings, August Share Offering
The inaugural SpaceShipTwo flight delay isn’t the only thing that spooked investors over the past month.
On August 3, Virgin Galactic reported its second quarter earnings. The company reported no revenue for the quarter, and a loss of $63 million. While it still had the cash equivalent of $360 million, the company also announced a plan to sell millions of additional shares. This would raise more operating capital as it prepares to launch commercial operations.
The company ended up selling 23.6 million shares, raising $460 million for its coffers. As InvestorPlace contributor Ian Bezek points out, having their investment diluted by the additional shares didn’t thrill existing Virgin Galactic stock shareholders. It’s a case of short term pain for long term gain, but it contributed to the Virgin Galactic slide that has continued through August.
Bottom Line on SPCE Stock
The one thing you can say about Virgin Galactic is that you can buy Virgin Galactic stock. Other prominent space startups including Tesla (NASDAQ:TSLA) CEO Elon Musk’s SpaceX and Amazon (NASDAQ:AMZN) founder Jeff Bezos’ Blue Origin have yet to go public.
There aren’t a whole lot of investment analysts who cover Virgin Galactic, but the four tracked by CNN Business rate it as a buy. Their median 12-month price forecast of $26.00 offers 45% upside. Even the most pessimistic of the group has SPCE pegged at $22.00, for 22% upside. Is SPCE stock going to outperform if the market cools? Many investors are convinced that’s the case. They helped push Virgin Galactic shares to a record $37.35 close in February.
The launch of SpaceShipTwo with its first paying passengers in 2021 is going to be a make or break time for Virgin Galactic. A success will have passengers lined up with cash in hand, while a crash could finish the company for good. A success also paves the way for longer and more expensive flights. In the meantime, with stock currently priced at less than half its February level, SPCE is an attractive option for those interested in investing early in what could well become a high-flying space stock.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
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