Virgin Galactic (SPCE) has set a new test date for its SpaceShipTwo space plane after a December attempt was cut short. But the company has seen major investors selling their shares in recent weeks. So, is SPCE stock a good buy? For the answer, take a look at the space company’s earnings and stock chart.
Founder Richard Branson sold about $150 million worth of shares in Virgin Galactic, about 2.5% of the space tourism company, in mid-April, according to a recent regulatory filing.
The proceeds will go to prop up Branson’s leisure and travel businesses, which were hit hard during the pandemic.
In early March, Chamath Palihapitiya, the Chairman of Virgin Galactic, tweeted that he sold his 6.2 million-share stake in Virgin Galactic. The stock was worth about $213 million. But he still owns 15.8 million shares via his special purpose acquisition company, Social Capital Hedosophia Holdings, which took SPCE stock public.
Virgin Galactic Stock Fundamental Analysis
SPCE stock debuted on the NYSE on Oct. 28 2019, becoming the first publicly traded commercial space tourism company after a reverse merger with Social Capital Hedosophia Holdings.
But it is still not flying paying passengers to the edge of space yet, so there is no revenue coming in and losses are piling up.
On Feb. 25, Virgin Galactic reported a per-share loss of 31 cents in Q4, matching forecasts, down from a 37 cents per share loss in the year-ago quarter. Revenue stayed at zero.
Management said the company is “well-capitalized” and “sitting on quite a good balance sheet.” The company is spending around $16 million per quarter and has over $660 million in cash.
Virgin Galactic retired its “One Small Step” on Dec. 31, saying participants have reached close to 900.
The space company will announce Q1 results after the market closes on May 4. Analysts see a loss of 31 cents per share with no revenue.
Still, Wall Street remains bullish on the company. On March 17, Truist initiated SPCE stock as a buy with a 50 price target. Analyst Michael Ciarmoli said that he expects Virgin Galactic to “capture at least 50% of the global space tourism total available market by 2030.”
But non-financial analysts have been more skeptical, especially about Virgin’s timeline for revenue-generating tourist flights. Laura Forczyk, the founder of space consulting firm Astralytical, estimates Virgin Galactic has “a bit less than a 50% chance” of starting commercial service in 2022. Instead, she thinks it will be closer to 2024.
While the company began as a space tourism company, analysts have also noted Virgin Galactic’s potential in hypersonic point-to-point travel, by using its space plane to take passengers across continents in a fraction of the time it takes today.
Virgin is partnering with Boeing (BA), whose venture capital arm HorizonX has a $20 million minority stake in Virgin Galactic, in high-speed travel.
Virgin Galactic said in February 2020 that it sees a “huge opportunity” to apply high-speed global mobility technology to reduce travel time. Then-CEO Whitesides told CNBC at that time the company wants to integrate its vehicle into national airspace systems, allowing it to land at airports and link to local transport networks.
More Space SPACs Ahead
Investors in Virgin Galactic stock could soon get another option to invest in space. Founder Richard Branson has hired Credit Suisse Group AG and LionTree LLC to find a special purpose acquisition company (SPAC) to take it public, sources told the Wall Street Journal in mid-March.
The news came as Virgin Orbit, a spinoff of Virgin Galactic, launched 10 satellites into space on Jan. 17 after a key test flight stumbled in May. Virgin Orbit uses Cosmic Girl, a modified Boeing 747, to take the LauncherOne rocket to an altitude of 35,000 feet, where it is released and ignited to continue on to space.
Virgin Orbit and Virgin Galactic were split in 2017 so Virgin Orbit could focus on low-cost launch services for small satellites for the U.S. military and other customers. It already has a $35 million three-launch deal with the Space Force and is working with the Air Force on launches from Guam.
The space sector is becoming increasingly more crowded, with more opportunities for investors outside of Virgin Galactic as blank check companies plan to take Rocket Lab, Spire Global, and Astra Space public.
Forczyk said some investors may view an operational company such as Rocket Lab as less risky than Virgin Galactic, which has yet to begin commercial flights, but others may see Virgin Galactic’s hundreds of ticketholders as representing greater growth potential, she added.
SPCE Stock Technical Analysis
Virgin Galactic stock broke out from a 27.65 cup-base buy point in early December but tumbled later in the month after the powered test flight failed.
Then SPCE stock broke out of a new cup base, this time with a 35.92 entry, in late January. But on Mar. 1, the stock made a “round trip,” erasing those gains, signaling that investors should close out their positions. The stock is currently trading below its 50-day and 200-day lines and no new pattern has formed.
The relative strength line had drifted lower since February before rising slightly in December on test flight hopes.
The stock has an Accumulation/Distribution rating of D-, indicating more selling than buying by institutional investors.
Virgin Galactic stock is ranked No. 41 in IBD’s Aerospace/Defense Group.
After the success of the Ark Innovation ETF (ARKK), which features Elon Musk’s Tesla (TSLA) as its top holding, Cathie Wood’s Ark Investment Management is looking to start the ARK Space Exploration ETF (ARKX), according to a filing with the Securities and Exchange Commission in January.
Test Flight Redo Pushed Back
Virgin Galactic aborted a powered test flight of its spaceplane on Dec. 12, delaying a key step needed to start commercial service, after a sudden halt in the rocket motor’s ignition sequence. Engineers found that the onboard computer that monitors the rocket motor lost connection. That triggered a fail-safe that halted the rocket motor’s ignition.
The test flight was supposed to complete data for the final two FAA verification and validation milestones.
After the aborted attempt, the SpaceShipTwo’s flight-control computer system was modified to reduce electromagnetic interference and prevent a reboot of the rocket motor. But those modifications unintentionally created additional interference that require changes to the flight control computer.
Another test flight attempt is set for May, with additional tests in the summer.
Virgin Galactic unveiled its SpaceShip III spaceplane in late March. The vehicle will be made from a “mirror-like material” that during spaceflight will be “constantly changing color and appearance as it travels from earth to sky to space,” according to Virgin Galactic.
SpaceShip III will undergo its own flight test program. Then in the fall, SpaceShipTwo, the WhiteKnightTwo mothership, and SpaceShipThree will undergo maintenance or improvement. That will result in a roughly four-month period of no flight activity.
Virgin Galactic now sees its first commercial flight in early 2022.
The company unveiled the interior cabin design of its SpaceShipTwo in July. Aluminum and carbon-fiber seats are individually sized and the fabric was created by Under Armour (UAA), which also designed Virgin Galactic’s spacesuits. A large mirror in the back of the cabin allows astronauts to see themselves weightless during flight. The cabin also features 17 windows and 16 cameras.
Once commercial flights begin, passengers will depart from Spaceport America, which is Virgin Galactic’s commercial space flight facility in New Mexico, near the U.S. Army’s White Sands Missile Range. The spaceport features a luxury lounge, mission control, and a briefing area.
Virgin Galactic’s Space Ambitions With NASA
The company has also been busy racking up deals with NASA. In June 2020, Virgin announced an agreement with the space agency to create an astronaut training program. SPCE stock jumped on the news.
Under the deal, the company will “develop a new private orbital astronaut readiness program” for customers looking to go to the International Space Station. Virgin also will find customers that want to buy astronaut missions to the station, book transportation to the ISS and perform on-orbit and ground resources tasks.
Last May, Virgin Galactic announced a separate deal with NASA to help develop a sustainable high-Mach supersonic aircraft.
NASA, which also performs aeronautics research, has been working on a high-Mach flight, one that doesn’t produce a sonic boom, under its Supersonic X-59 program with Lockheed Martin (LMT) Skunk Works. Such technology could make supersonic passenger service more feasible.
Virgin Galactic is eyeing that potential market too. In August, it signed a memorandum of understanding with Rolls-Royce to collaborate in designing and developing engine propulsion technology for Mach 3 commercial aircraft. Rolls-Royce built the engine for the Concorde, which flew at Mach 2.
The Rolls-Royce announcement included an initial design concept of the aircraft, which could carry nine to 19 passengers and fly at an altitude above 60,000 feet. Management has said that a Mach 3 aircraft has the potential for travelers to do a round trip in one day between 85% of the most frequently traveled global city pairs.
On March 5, former CEO George Whitesides announced he was stepping down from his role as chief space officer less than a year after the position was formed.
Whiteside’s departure isn’t the only recent management change for Virgin Galactic. CFO Jon Campagna stepped down Mar. 1 and will be replaced by Doug Ahrens, who had served as CFO of chipmaker Mellanox.
Virgin Galactic also named Swami Iyer as president of aerospace systems and Stephen Justice as vice president of engineering. Justice previously worked at Lockheed’s top secret Skunk Works research facility.
And in July, Virgin Galactic appointed Michael Colglazier as the new CEO. In his previous role as president of Disney (DIS) Parks International, Colglazier was responsible for operations, strategy, and commercial and experiential development of the company’s parks and resorts.
Is SPCE Stock A Buy?
While IBD typically advises investors to focus on companies with strong earnings growth, newly public companies can also merit attention if they show strong revenue growth. Virgin Galactic, however, has neither.
While it has NASA contracts under its belt, its powered test flight failed to reach space. Commercial service is due to begin this year but the coronavirus pandemic and testing delays could impact the timeline. While SPCE stock recently cleared a new buy point, it’s no longer in buy range.
Bottom line: Virgin Galactic stock is not a buy under CAN SLIM criteria as it is not in a buy zone.
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Follow Gillian Rich on Twitter @IBD_GRich for space news and more.
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