SPCE Stock: Headed into Orbit, or Crash Landing?

Virgin Galactic (SPCE) is a California-based spaceflight company founded by Richard Branson and Burt Rutan. This company has caught the attention of investors, spiking in dramatic fashion a couple of times this year.

The New Mexico company has a market capitalization of $4.2 billion at the time of writing, and has arguably been one of the best-performing de-SPAC stocks on the market this year.

However, various headwinds appear to have cooled the overall sentiment surrounding this stock. There’s a dichotomy of investors right now looking at Virgin Galactic as a viable long-term holding.

I’m currently neutral on this stock, but am intrigued by what bulls and bears have to say. (See Analysts’ Top Stocks on TipRanks)

Mixed Views

Looking at the analyst projections of where SPCE stock could be headed from here, there appears to be a wide chasm between the bulls and bears. This divide appears to be true among retail investors as well right now.

On the one hand, bears will note that Virgin Galactic has delayed its Unity space flight to next year. This planned flight — which would take members of the Italian Air Force to low orbit — was expected to take place this fall. However, concerns around various materials used on the spacecraft, and additional inspections needed, have caused Virgin Galactic to take a cautious approach to launching commercial flights.

These bearish concerns appear to be driving price action with SPCE stock right now. Investors appear to be much less bullish on Virgin Galactic actually winning out in this space race, despite being the first major company to bring its CEO, Branson, into space earlier this summer.

SPCE stock began declining almost immediately after the company announced a $500-million stock offering following the company’s first flight.

It appears some investors felt as though they were being hoodwinked by this initial flight. Concerns about dilution and how financially sound this company is have overshadowed the fact that Virgin is a company that’s poised to take significant market share in this growing sector.

Bulls note that Virgin Galactic is still well positioned to do what the company says it will do. The recent capital raises have provided a war chest the company can use to get its spacecraft upgraded to the level it needs to be to begin regular flights.

Analysts bullish on Virgin Galactic’s prospects have forecasted nearly 2,000 annual space flights. These flights could bring in as much as $1.2 billion in revenue per year.

Accordingly, at such forward projections, Virgin Galactic would now trade at less than four times sales, a rather attractive price, given the growth prospects of this company.

Financials

Virgin Galactic’s financial statements are among the most difficult to assess right now. That’s mainly because this company is still considered to be pre-revenue, for all intents and purposes.

That said, it should be noted that Vrigin Galactic has cut its quarterly losses substantially of late. The space tourism company is burning less cash, and has a bigger buffer than before. These factors are bullish for investors.

However, the speed at which Virgin Galactic can grow its revenues from here remains unknown. Investors note that the expansion of the company’s fleet, largely paid for by the previous equity offering, could be bullish for revenue growth next year. However, that all depends on the company getting the regulatory green light to commence flights.

Thus, there’s operational risk that’s being baked into this company’s valuation right now. As it stands, Virgin Galactic’s financials leave many fundamental investors wanting. Until this company produces significant revenue growth, SPCE stock also appears to be one many growth investors won’t touch.

However, for those bullish on the ability of Virgin Galactic’s management team to get its space flights approved, this is a business which could be one worth considering. Projections are that Virgin Galactic could be profitable by Fiscal Year 2025. That’s “only” three years away — for long-term investors, a time period worth waiting on.

Wall Street’s Take

As per TipRanks’ analyst rating consensus, Virgin Galactic is a Hold. Out of 10 analyst ratings, there are five Buy recommendations, two Hold recommendations, and three Sell recommendations.

The average Virgin Galactic price target is $29.20. Analyst price targets range from a high of $50 per share to a low of $15 per share.

Bottom Line

The space tourism business is still in its infancy. In this regard, there’s certainly a bullish argument to be made about Virgin Galactic’s prospects at grabbing market share in a growth sector that’s likely to be in high demand for a long time.

Expectations are that the space tourism business could grow at a 15% CAGR for the half decade, slowing to 17.5% through 2031. That’s enticing to growth investors, particularly those who like Virgin Galactic’s positioning right now.

That said, there are some financial and regulatory conners that don’t look like they’re going away any time soon. Accordingly, SPCE stock remains one that many investors simply are content with waiting on the sidelines with right now. That certainly makes sense.

Disclosure: At the time of publication, Chris MacDonald did not have a position in any of the securities mentioned in this article.