The response to Virgin Galactic’s (SPCE) quarterly report was fairly muted. Following the release, shares ended the day up less than 1% to $18.08, yet this reaction masked considerable volatility. In earlier trading, shares actually gapped down to $14.21.
Virgin Galactic stock has been in a major downtrend since February. The price has fallen about 70%, bringing the market capitalization to $4.3 billion.
What happened during the quarter that so deeply affected the stock? One marked result was that the company reported a net loss per share of 55 cents versus analysts’ expectations of a 31 cents per share loss. Adding to the pessimism, the company is currently not generating any revenue.
The cash position is robust as there is $617 million in the bank, but cash outflows continue to be significant. The company chalked up outflows of $50 million in the quarter and expects to see that number increase by $10 million in the current quarter. (See Virgin Galactic stock analysis on TipRanks)
Delays and Safety Issues
Virgin Galactic is one of the few pure-plays on the space opportunity. The company also has the benefit of its co-founder, the legendary Sir Richard Branson. He is a serial entrepreneur with a knack for upending industries.
The vision for Virgin Galactic is undoubtedly bold. The company aims to create a platform for routine space tourism. Its current vehicle can reach an altitude of 50,000 feet, where passengers can experience weightlessness.
On the other hand, the development of Virgin Galactic has been long and challenging. Note that the company was founded back in 2004 and along the way, there have been several mishaps.
Unfortunately, despite its progress, Virgin Galactic is still having trouble with its platform. Earlier in the year, the company announced a delay in test flights because of a glitch in the computer systems.
Now, the good news is that the glitch has been resolved. However, another problem has since emerged. As Virgin Galactic CEO Michael Colglazier said on the earnings call, “So specifically we’re looking at what we call a basically a fatigue or stress items. So like we were just talking about in terms of lifetime and health there is a couple of issues that we want to track and make sure that we see how the vehicle ages over time and how we address that. And basically, it’s pretty common to all aircraft systems.”
It is far from clear what this will mean in terms of the timeline, but the wear-and-tear of parts is definitely worrisome. Virgin Galactic will certainly want to ensure that all systems are functioning perfectly before they get back on track.
Analysts’ Approach
Wall Street remains upbeat on the Virgin Galactic, despite the delay in test flights. Consensus among analysts, based on 4 Buys and 5 Holds, is a Moderate Buy. The average analyst price target is a hefty $33.33, which assumes about 109.4% upside potential from current levels.
Bottom Line on Virgin Galactic Stock
When looking at the long-term, the prospects for Virgin Galactic look bright. While there is competition, such as from Elon Musk’s SpaceX, the market is large enough for multiple players. Based on research from UBS (UBS), spending could hit $38 billion by 2023.
If investors want exposure to the opportunity, and have the stomach for volatility, then buying on the current weakness could make sense right now.
Disclosure: On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
