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The euphoric corners of the market are getting deflated as this bull market matures and stocks pickers start taking over the show with logical fundamentally back investment decisions. Virgin Galactic SPCE is one of those highly speculative names that has received a ton of overzealous euphoria from this new, market-moving wave of retail traders, who are driving excess into the equity markets.
Virgin Galactic is Richard Branson's space tourism company that I would describe as the roller coaster ride for the 1% of the 1%. This business will continue to lose money for years to come and won't even recognize revenue until its first commercial flights next year. Analysts are dropping their long-term EPS estimates on SPCE as the timeline to profitability gets pushed back, which lowered the stock to a Zacks Rank #5 (Strong Sell).
The Retail Trading Revolution
Millennials and Gen Z's have entered the market in masses over the past year, and they have been a huge reason for this stock's over 200% return from its initial SPAC pricing of $10 a share. This cohort of freshman traders has been coming together on a Reddit message board called r/wallstreetbets (WSB) to target heavily shorted stocks with nostalgic or thought-provoking operations. These WSB traders have initiated short-squeezes that provide early shareholders with rapid returns as short-sellers are forced to cover their positions (repurchase the stock at a higher price) which catalyzes a leveraged price action.
The considerable short-interest, which currently sits at 20% of float but was as high as 72% in January, combined with its mission to bring humanity to the cosmos, excites young traders who grew up with Star Wars, Interstellar, Apollo 13, and a slew of other stimulating films about the mystifying final frontier.
SPCE has seen massive price swings since it hit the exchanges back in 2019, with the past 2.5 months alone exhibiting a low of $14.27 and a high of $57.51 a share, making this an attractive gambling tool for the growing number of risk-seeking speculators. The high level of speculation alone would keep me from touching these shares, but when you combine that with 0 revenue and negative income for the foreseeable future, it's time to rethink your risk appetite.
The Product Offering
Virgin Galactic was one of the first major companies to utilize a special purpose acquisition company (SPAC) to go public, oppose to a traditional IPO. This unconventional public offering method was used because of its lack of financial visibility, which would turn many large institutions off if they went through the normal IPO process.
Virgin Galactic launched its first fully crewed flight earlier this month with its founder, Richard Branson, on board. The company announced that it would be launching its first commercial flight in 2022 for $250,000 a head, following some more test flights this year.
$250,000 seems like a hefty price for only a few minutes of weightlessness. Still, it's only a fraction of Jeff Bezo's June auction for a seat on Blue Origin's New Shepard, which went for $28 million a chair, and Musk's Crew Dragon SpaceX flight which 4 consumer passengers are paying $55 million a pop for.
There is no way for me to value SPCE without vast assumptions (aka guesses) about its future operations. The fact that it will be competing with other space tourism businesses makes the stock even less attractive. It takes an immense risk appetite to be willing to buy a stock that can halve in a week. I would stay away from this stock until actual revenues can be quantified and a timeline to profitability can be reasonably estimated.
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Virgin Galactic Holdings, Inc. (SPCE) : Free Stock Analysis Report
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