Virgin Galactic (NYSE:SPCE) was the first among an alluring small group, including Blue Origin and SpaceX, to advance the commercial space flight revolution. However, despite the initial hype, Virgin has shown an alarming pattern of unfulfilled promises, pauses in space flights, shareholder dilution, expectations for imminent layoffs, and projected revenue contraction, leading to its stock price plummeting 98% in the past three years. The recent reverse stock split further fueled the company’s bearish outlook.
Yet, the company reports completing its Delta spaceship manufacturing facility marks a turning point in its ability to resume flights, for which it claims to have an 800-person waitlist. The increased competition from other major players, regulatory scrutiny, and ongoing technical delays create considerable skepticism about Virgin Galactic’s long-term future. However, this negative outlook is likely fully reflected in the share price.
While not for most investors, the contrarian willing to bear the potential risks associated with such a speculative venture could capture significant rewards in the event of a positive surprise.
Virgin Galactic Reaching for the Stars
Virgin Galactic Holdings is a pioneer in aerospace and space travel. The company has paused its tourism flights to concentrate on developing its next-generation Delta spaceships, which are set to launch in 2026. Analysts predict that the regular flights of these new spacecraft could clear the backlog of around 800 ticket holders within a year and open up new sales opportunities for $600,000 per ticket.
The company recently completed its new manufacturing facility in Phoenix, Arizona. In 2025, the facility will be ready to receive significant subassemblies, including the wing, fuselage, and feathering system, for the Delta spaceships. Completed spaceships will be transported to Spaceport America, New Mexico, for flight testing before commercial operations. The new spaceships will accommodate up to six passengers and are expected to fly up to eight monthly missions.
This increase in space access is a significant step towards making space travel more widely available, opening up unprecedented opportunities for individuals, researchers, and government agencies. The global space tourism market is projected to expand at a CAGR of 44.8% from 2024 to 2030, generating over an estimated $10 billion in revenue by 2030.
Highlights of Virgin Galactic’s Financial Results & Outlook
Virgin Galactic’s financial performance in Q1 2024 demonstrated notable growth and ongoing challenges. The company reported revenue of $2 million, up from $0.4 million in Q1 2023, fueled by commercial spaceflight and future astronaut membership fees. Operating expenses of $113 million were down from $164 million in Q1 2023. Net loss decreased to -$102 million from -$159 million, primarily due to reduced operating costs and rising interest income.
The net cash used in operations was $113 million, slightly lower than the $136 million in Q1 2023. The company finishes the quarter with $867 million in cash, cash equivalents, and marketable securities.
The company issued 5.1 million shares, generating $7.3 million, as part of its at-the-market offering program. Virgin also recently completed a 1-for-20 reverse stock split of its common stock, aimed at increasing the per-share market price to meet the NYSE’s minimum bid price requirement for continued listing.
Management has offered financial guidance for Q2 2024, anticipating revenue to reach approximately $3.5 million and free cash flow between $110 million and $120 million.
What Is the Price Target for SPCE Stock?
The stock has been on a long, volatile descent over the past three years, shedding most of its value while sporting a beta of 2.32. Contrary to the attempt to increase the share price, shares have dropped 35% since the reverse stock split. With a P/B ratio of 0.4x, the stock appears undervalued compared to the Aerospace & Defense industry average of 4.04x.
Analysts following the company have taken a cautious stance on the stock. For instance, Goldman Sachs analyst Noah Poponak has recently reiterated a Hold rating on the shares, noting that while the company is progressing towards its future Delta class of vehicles, its revenue generation remains modest compared to its significant cash burn rates. Future value hinges on demand for space flight rising to levels that would support the company’s growth plans.
Overall, Virgin Galactic is rated a Hold based on seven analysts’ recommendations and recently assigned price targets. The average price target for SPCE stock is $36.40, representing a potential upside of 352.74% from current levels.
A word of caution: many price targets were assigned before the reverse stock split, and downward adjustments are likely.
Final Thoughts on Virgin Galactic
Virgin Galactic may not have met investors’ expectations to date, but its planned increase in accessibility to space travel could reshape the industry and bring substantial returns. The company has faced a series of setbacks, yet with the completion of its manufacturing facility and a lengthy waitlist for flights, the company could be on the brink of a breakout. The long-term growth potential of this niche market, driven by the rise in demand for space flight, may make it a speculative but intriguing option for daring contrarian investors.
