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This article first appeared on Simply Wall St News.
While the first space race was between the US and the Soviets, the second one is fought within the US.
Virgin Galactic Holdings, Inc.(NYSE:SPCE) is a prominent competitor in the commercial spaceflight race. Earlier this month, the founder Richard Branson officially made it to space, announcing regular space tourism trips to start in 2022.
Today we will examine the company's balance sheet and assess the outlook for the company that still has no notable revenue.
Significant insider selling still weighs on the company, with almost US$ 375m sold by the insiders. Despite that, the stock rallied on Richard Branson's successful flight but failed to make a new all-time high before retracing to the $31 level. This is close to the middle of the range, given the yearly low of $14 and the high of $57.
Stock remains highly volatile, and that is precisely what makes it an options speculator darling. Furthermore, stock attracted attention from short-sellers, with a 19.53% short percent float.
What Risk Does Debt Bring?
Debt is a tool to help businesses grow, but if a business is incapable of paying off its lenders, then it exists at their mercy. If things get terrible, the lenders can take control of the company.
While that is not too common, we often see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. The most common situation is where a company manages its debt reasonably well - and to its advantage. When we examine debt levels, we first consider both cash and debt levels together.
How Much Debt Does Virgin Galactic Holdings Carry?
As you can see below, at the end of March 2021, Virgin Galactic Holdings had US$363.0k of debt, up from none a year ago. Click the image for more detail. But it also has US$616.6m in cash to offset that, meaning it has US$616.3m net cash.
How Healthy Is Virgin Galactic Holdings' Balance Sheet?
The latest balance sheet data shows that Virgin Galactic Holdings had liabilities of US$118.1m due within a year and liabilities of US$210.1m falling due after that. Offsetting these obligations, it had cash of US$616.6m as well as receivables valued at US$829.0k due within 12 months. So it has US$289.3m more liquid assets than total liabilities.
This short-term liquidity is a sign that Virgin Galactic Holdings could probably pay off its debt with ease, as its balance sheet is far from stretched. Succinctly put, Virgin Galactic Holdings boasts net cash, so it's fair to say it does not have a heavy debt load! Although we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Virgin Galactic Holdings's ability to maintain a healthy balance sheet from now on. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.
It seems likely shareholders hope that Virgin Galactic Holdings can significantly advance the business plan before too long because it doesn't have any significant revenue at the moment.
So How Risky Is Virgin Galactic Holdings?
By their very nature, companies losing money are riskier than those with a long history of profitability. And in the last year, Virgin Galactic Holdings had earnings before interest and tax (EBIT) loss. And over the same period, it saw a negative free cash outflow of US$240m and booked a US$398m accounting loss. But at least it has US$616.3m on the balance sheet to spend on growth in the near term.
Overall, its balance sheet doesn't seem overly risky at the moment, but it looks like the company prefers to dilute the shareholders instead of taking on debt.
Not all investment risk resides within the balance sheet - far from it. For example, we've discovered 4 warning signs for Virgin Galactic Holdings (1 is a bit unpleasant!) that you should be aware of before investing here.
It's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.
Simply Wall St analyst Stjepan Kalinic and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.