At a time when things on old planet Earth seem a bit chaotic, it can be tempting for investors to look to the heavens. No, Im not talking about that heaven. Im referring to space. Interestingly enough, one of the hottest traded stocks on Robinhood in the month of February was Virgin Galactic (NYSE:SPCE) stock.
Source: Christopher Penler / Shutterstock.com
SPCE stock rocketed up over 20% from the beginning of January until Feb. 19. At that point, the stock has come back down to earth. However, its still holding onto a gain for the year. Thats no small feat considering the selloff that is happening in the broader markets.
Theres a part of me that respects Virgin Galactic. After all, as a wide-eyed elementary school student, I was promised wed be flying in our own Millennium Falcons by 2020. But the reality is were not even cruising around earth like George Jetson. This brings to mind the harsh reality of space travel. It costs money. Lots of it.
Sir Richard Branson isnt the only billionaire entrepreneur looking to be the first into space. And hes not even the first to come up with the idea. Amazon (NASDAQ:AMZN) CEO Jeff Bezos, the founder and owner of Blue Origin, launched his space business in 2000. That was four years before Virgin Galactic came into existence.
And Tesla (NASDAQ:TSLA) CEO Elon Musk has his SpaceX business. Both ventures are attempting to make a dent into the space sector. However, Branson has the advantage of being the first pure play space company that is publicly traded.
However, SPCE stock came into being in a less-than-conventional way. Our own Ian Bezek wrote about the reverse merger that took the company public. And more importantly what that means for retail investors now that many of these initial investors have taken their profits.
But regardless of how you feel about the way Virgin Galactic came into existence, SPCE stock can act as a currency to help the company stay afloat. And if youre an individual investor looking to invest in space, Bransons company is the only publicly traded option.
Branson positions the company as the best of both worlds. He believes the company is a hardware company that will have the margins of a software company. The most potentially viable business for Virgin Galactic is like the Concorde, only traveling at higher altitudes and faster speeds. In fact, the space part of this business is that the aircraft will be cruising at altitudes of 100 kilometers above the Earths surface.
According to the company, they will begin conducting these suborbital flights next year at a cost of $250,000 per seat. There will be six seats available on each flight. And the company also reports that they already have 8,000 customers who are looking to test the technology.
But as Josh Enomoto recently wrote, the science is ahead of the companys ability to scale this into a viable business for anyone except the ultra-rich (a number that may be declining by the day). And thats where my objection comes in. SPCE stock may very well be an unintended victim of the coronavirus because seeing this stock become profitable seemed like a moonshot in the best economy. Now, it just seems like a failure to launch.
I dont know Sir Richard Branson. It seems like hes a true believer in the businesses he owns. He may very well believe that our future is in space travel. But Im not buying it right now, at least not with any money that meant something to me.
Every stock like SPCE has an enticing business proposition. In the case of Virgin Galactic, the idea of suborbital space flight may be the most viable part of its business. Suborbital flight can take customers right to the edge of space. They get a feeling of weightlessness without that silly astronaut training. But even that business is going to require a massive investment to become scalable.
Over the next weeks and months, many investors will be retreating into a fantasy world fueled by streaming services. But when it comes to your investments, there will be buying opportunities that are rooted on solid ground. Its okay to shoot for the stars, but SPCE stock at this point needs to deliver customers and cash before its a viable business.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019. As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.
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