Virgin Galactic Chairman Chamath Palihapitiya is upset that analysts are calling SPCE stock a bubble. He claims the space tourism company offers investors a unique Tesla-style narrative, along with $2.4 billion in potential revenue.<\/p>\n
Credit where credit is due: Palihapitiyas argument is out of this world. But not in a good way.<\/p>\n
Space tourism sounds very intriguing. Hop in a rocket and go on an awe-inspiring voyage around the Earth. The Instagram opportunities alone are unfathomably attractive.<\/p>\n
Thats why its not entirely surprising that Virgin Galactic stock has been on an incredible run in 2020, with SPCE shares up more than 180% even after the recent stock market sell-off.<\/p>\n
Palihapitiya, clearly fed up with all the accusations that SPCE stock is a bubble, went on cable television to make his case. Unfortunately, everything he said confirmed that Virgin Galactics rally is exactly that.<\/p>\n
He began with this gem:<\/p>\n
Theres a setup [in the market] where theres no real growth, theres no unique stories and theres nothing that can give you long-term outlook<\/p>\n
Essentially what this means is that frustrated investors with capital to burn are desperately seeking to get their money out of low-yielding cash. Theyll throw it at practically anything in the hope it blasts off.<\/p>\n
Over the last few years, this has meant the growth story is often more significant than the economic fundamentals of a business.<\/p>\n
Beyond Meat and Tesla are examples of companies like this. (Well get to why it isnt fair to compare them to Virgin Galactic stock later.)<\/p>\n
SPCE is the product of excessive speculation, which in many ways is the purest definition of a bubble.<\/p>\n
Next, Palihapitiya suggested that his space tourism business has a sizeable amount of demand, some $2.4 billion. This is based on the statistic that roughly 8,000 people have expressed interest in taking a flight.<\/p>\n
Unfortunately, this pent-up demand is rather, well, pent-up.<\/p>\n
Currently, just one spaceship is nearing operation, with two more on the way, leaving an important question unanswered. How many passengers can even fly on a ship?<\/p>\n
Per Virgin Galactic, just six passengers at a time.<\/p>\n
Not sixty.<\/p>\n
Not sixteen.<\/p>\n
Six.<\/p>\n
You dont have to be a market wizard to figure out that 8,000-divided-by-6 isnt exactly cash waiting to be delivered.<\/p>\n
We wont go into how many of the 8,000 who signed up are just dreamers, or how realistic $300,000 is as a price-tag.<\/p>\n
And according to their CEO, ticket costs could actually be as high as $1 million.<\/p>\n
Ignoring the dreamers, how many genuine prospective passengers would casually stomach that $700,000 price hike?<\/p>\n
Its not like there isnt plenty of well-funded competition out there.<\/p>\n
Finally, the Virgin Galactic chairman made a questionable comparison between SPCE and Tesla.<\/p>\n
Tesla may be controversial, but its a company that actually has a product, sells a lot of them, and is a class-leader in terms of innovation.<\/p>\n
Sky-high cash burn links SPCE and TSLA, but thats where the fundamental similarities end.<\/p>\n
Tesla stock has been accused of being a bubble, and thats an absolutely valid thesis at least if you prioritize conventional accounting and valuation metrics.<\/p>\n
But Virgin Galactic is up more than double TSLA this year:<\/p>\n
If you think Tesla is a bubble, then that makes Virgin Galactic a balloon.<\/p>\n
Sir Richard Bransons venture into the billionaire playground of space travel looks more like Beyond Meat (NASDAQ: BYND) than Tesla.<\/p>\n
Its the only publicly traded game in town for space travel, so it gets a larger slice of the speculative interest in that concept. BYND enjoys the same status as a company solely devoted to alternative-meat products.<\/p>\n
Yet its probably unfair to compare Beyond Meat to Virgin as well, because BYND has shown glimmers of profitability lately.<\/p>\n
Virgin Galactic is the very definition of a bubble, and its backers should embrace that fact not dispute it with questionable forecasts. Such optimistic guidance can often be precisely why gullible investors get hurt.<\/p>\n
Disclaimer: This article represents the authors opinion and should not be considered investment or trading advice from CCN.com.<\/p>\n
This article was edited by Josiah Wilmoth.<\/p>\n
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More here:<\/p>\n
Virgin Galactic Stock Is Nothing Like Tesla Its Light-Years Worse - CCN.com<\/a><\/p>\n","protected":false},"excerpt":{"rendered":" Virgin Galactic Chairman Chamath Palihapitiya is upset that analysts are calling SPCE stock a bubble. He claims the space tourism company offers investors a unique Tesla-style narrative, along with $2.4 billion in potential revenue Continue reading