SPCE

Virgin Galactic Stock Seems Like a Bargain, but I Wouldn't Touch It for the Next 2 Years

Virgin Galactic (NYSE: SPCE) stands to be a pioneer in the burgeoning cosmos of space tourism, enticing investors with visions of the final frontier. Yet as an observer with a cautious eye on market dynamics and a penchant for prudent investments, I view Virgin Galactic's stock with a blend of intrigue and mounting skepticism. Despite its alluringly low price, the company's trajectory remains riddled with financial and operational asteroids. This includes the recent decision to dial back some operations to focus on its Delta Class spaceships, predicted to deploy beginning in 2026. This shift underpins a constellation of concerns that suggest steering clear of Virgin Galactic's stock might be wise for the next two years.

Virgin Galactic must deal with the financial gravity of innovation

As Virgin Galactic restructures its workforce to channel resources into the development of its Delta Class spaceships, the company stands at a critical juncture. It's taking a daring bet on the future, as it tries to transform stellar dreams into tangible profits. With around $1.1 billion in cash and marketable securities available to it last year, there's a semblance of financial breathing room.

Navigating through a universe where high interest rates and geopolitical tensions loom large, Virgin Galactic faces an uncertain journey if and when it needs additional funding. The stock's roller-coaster ride -- peaking at $6.61 and plunging to around $2.45 within a 52-week span -- mirrors investor apprehension about the company's ability to prosper amid the challenges of a freshly minted industry.

Virgin Galactic's financial health, punctuated by significant net losses like the $104.6 million in the third quarter of 2023 and projected free-cash-flow deficits of up to $135 million for the fourth quarter, tells of a company battling against a strong gravitational pull toward financial woes. As investors and enthusiasts alike watch closely, the question remains: Will the Delta Class spaceships propel Virgin Galactic toward a new era of profitability, or is it destined to remain adrift in a financial void? The answer lies in the company's ability to handle these cosmic hurdles with strategic finesse and a touch of the pioneering spirit that defines the space industry.

Virgin Galactic lost a tenuous lifeline from the stars

Founder Richard Branson's recent announcement that Virgin Galactic is to traverse the cosmos financially unaided by him marks a pivotal moment for the company. His decision to halt further funding injects a dose of reality into the company's celestial aspirations, a move that caused a significant 17.5% nosedive in stock value to $1.94. This sharp decline mirrors investor trepidation, highlighting concerns over potential cash shortages and the risk of stock dilution as the company endeavors to stand on its own.

This move casts a long shadow over Virgin Galactic's fiscal landscape, emphasizing its reliance on fluctuating external funding streams and the inherent volatility of the space exploration market. This adds a further layer of complexity and unpredictability, making the stock a potentially volatile proposition in the short to medium term. Yet, Virgin Galactic continues to showcase its operational prowess, with an impressive track record of six successful spaceflights in six months. This technical proficiency points to a company with solid foundations and the potential to reach new heights.

However, these technological milestones must be carefully balanced against the stark financial challenges and market perceptions that question the company's endurance in the long haul. As the space race intensifies, Virgin Galactic's journey ahead promises to be as challenging as it is exhilarating, with the company's fate resting on its ability to navigate uncertainties with strategic operations and visionary leadership.

The competitive landscape threatens to eclipse the pioneers

Virgin Galactic's journey unfolds in a celestial arena where rivals like SpaceX and Blue Origin also cast ambitious glances at the stars. Each entity, armed with groundbreaking technology and substantial financial resources, races to dominate the commercial space sector. This competitive landscape demands that Virgin Galactic not only innovate, but also astutely manage its resources to carve a distinct niche in this cosmic quest.

The company's market capitalization, which has seen a turbulent journey from $1.3 billion in March to around a more modest $955.4 million recently, showcases likely investor wariness. The fluctuating stock price reflects the broader market's reservations about Virgin Galactic's competitive edge and long-term viability.

Virgin Galactic's distinct focus on suborbital space tourism sets it apart from many would-be competitors. Yet the challenge lies in molding this unique proposition into a sustainable, profit-generating model, particularly in the absence of the robust financial support it once enjoyed. The recent shift away from new commercial flights only adds to the hurdles, curtailing potential revenue streams that could have provided much-needed financial buoyancy. The success of the company hinges on striking a delicate balance between its visionary aspirations and the stark realities of the competitive and financial landscapes it operates within, brought into stark relief by the shift to focus primarily on the Delta program.

Virgin Galactic spins a cautionary tale, for now

As I look toward the next two years, Virgin Galactic's stock indeed seems like a bargain in terms of share price and potential. However, the myriad uncertainties surrounding its operational execution, financial stability, and competition lead me to advise caution. For those holding shares, it may be a game of patience and nerves, hoping for a rebound once the Delta Class ships prove their worth and the company achieves positive cash flow. More risk-averse shareholders may see this as a smart exit point.

For others considering the allure of an inexpensive entry point, the risks seem to currently outweigh the potential rewards. In the high-stakes realm of space tourism, Virgin Galactic's journey becomes one of both awe and apprehension, where the promise of the stars is tempered by the hard realities of business and finance. Not that I won't take a hard look in early 2026 to see if the stars don't shine brighter on this venture.

Should you invest $1,000 in Virgin Galactic right now?

Before you buy stock in Virgin Galactic, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now... and Virgin Galactic wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.

See the 10 stocks

*Stock Advisor returns as of December 18, 2023

Nicholas Robbins has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Tags

More Related Articles

Info icon

This data feed is not available at this time.

Sign up for Smart Investing to get the latest news, strategies and tips to help you invest smarter.