Virgin Galactic Is a Solid Long-Term Bet on Space Travel Demand – InvestorPlace

Posted: May 14, 2020 at 6:03 pm

Virgin Galactic (NYSE:SPCE) stock has been out of this world.

Source: Tun Pichitanon /

In fact, since bottoming out at $6.90 late last year, SPCE stock blasted to a high of $42.49 just months later all on the idea that a global space industry could quickly become a multi-trillion dollar industry.

However, after flying too high, too fast, SPCE stock plummeted after posting a loss of $73 million in the fourth quarter of 2019. Analysts, including Credit Suisse analyst Robert Spingarn, said the firm could no longer recommend the stock after such a hefty run higher. Morgan Stanley analyst Adam Jonas noted Even Spaceships Must Return to Earth after downgrading the stock to a hold rating.

Virgin Galactic fell even more on news Sir Richard Branson plans to sell $500 million worth of SPCE stock. However, the sale is nothing to be too alarmed about. Branson is reportedly selling to help prop up his airline and leisure assets, which have been crushed by the novel coronavirus.

Even with all of the negativity, I still believe Virgin Galactic could revisit early 2020 highs. All thanks to sky-high space travel demand, and a recent deal with the folks over at NASA.

Granted, earnings are nothing to write home about just yet.

The company posted a loss of $60 million, or 30 cents a share in the first quarter, as compared to a loss of $42.5 million, or 30 cents, year-over-year. Revenue fell to $238,000 from $1.8 million, as well. Meanwhile, analysts were only looking for a loss of 15 cents on sales of $700,000.

While Virgin Galactic isnt pulling in great numbers just yet, dont write it off. With its One Small Step space travel initiative, its already received 400 deposits payments from individuals in 44 countries, which represents more than $100 million of potential future revenue.

Analysts are also bullish. Morgan Stanleys Adam Jonas, despite his calls for a modest correction, is maintaining an overweight rating and $24 price target.

Despite the modest adjustments to our space tourism [discounted cash-flow model], the company maintains a healthy cash position (~$500 million) and its expected ~$16 million per month cash burn position it well to navigate any near-term headwinds, he noted in late March.

Virgin Galactic and NASA just signed a Space Act Agreement to develop high-speed technologies.

In partnership with NASA, Virgin Galactic believes there are significant opportunities to apply higher speeds to drive technological development to allow industries to adapt to the changing economic and ecological environment. The collaboration will aim to inform the development of national strategies using economic and technical foundations with a focus on sustainability.

Plus, as InvestorPlace analyst Matt McCall notes, SPCEs status as a pure play alone will drive some optimism. And theres a real business here. Virgin Galactic is charging $250,000 a flight. But there are, well, millions of millionaires who will pay that sum for a once-in-a-lifetime experience. And as the company grows and improves, those costs will come down.

Granted, Virgin Galactic is a speculative bet at the moment. But Im willing to bet that if it can help transform air travel at hypersonic speeds, create more deals with NASA and get off the ground to meet sizable space travel demand, itll be well worth the investment.

In my opinion, the safest move is to take a small speculative bet on SPCE stock. Buy it. Forget about it, and check back on it next year.

Ian Cooper, an contributor, has been analyzing stocks and options for web-based advisories since 1999. As of this writing, Ian Cooper did not hold a position in any of the aforementioned securities.

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Virgin Galactic Is a Solid Long-Term Bet on Space Travel Demand - InvestorPlace

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