Buying Hopes And Prayers And Virgin Galactic
Summary
- A monopolistic position in the upcoming space races means plenty of upside and the potential for irrational behavior.
- Virgin Galactic can have huge upward or downward spikes as well as defensive stands as it can trade as a hedge against the market.
- Large upward stock moves mean the potential for capital raises it could only dream of before that it could even use to rally further.
- Virgin Galactic's cash position and future scaling plans.
Virgin Galactic Holdings, Inc. (NYSE:SPCE) holds an opportunistic position in the market as the only current way for investors to buy stock directly in the upcoming space races and commercial future space flights. This enviable position means that massive spikes in volatility could be the name of the game as the stock potentially builds a cult status of support amongst investors. Situations like this also mean that Virgin Galactic can potentially shake off major market turmoil, or even work as a hedge to the market, while potentially even rallying off of capital raises and large new valuations as other cults stocks such as Tesla, Inc. (TSLA) have been able to do. After its latest cash infusion as it became a public company, it is in prime position to build upon its December 13, 2018's initial commercial space vehicle launch.
Slide from Virgin Galactic's Q4, 2019 Earnings Presentation.
Being the only future commercial space flight company in the market right now means that Virgin Galactic can be subject to extreme bouts of irrational behavior as its main competition is impressive, but privately held at this time. SpaceX (SPACE), run by Elon Musk of Tesla, is expected to do its next capital raise at a whopping $36B valuation. Blue Origin, run by Jeff Bezos of Amazon.com, Inc. (AMZN) fame, can expect annual billion-dollar investments from its founder even as Bezos recently sold over $4B in Amazon stock to begin 2020, signaling maybe even greater space investments for him in the future.
Both of these private space companies have the option to stay private longer than most companies would due to their founders' fame and fortunes. This means that Virgin Galactic could be the main (or only) public commercial space play for more traditional investors over the next couple of years even as its ~ $4.8B market cap valuation is still significantly below its larger private competition, even after its nice run and recent pullback to start 2020.
Data by YCharts
Here's a look at how Virgin Galactic traded before its first-ever public conference call on February 25, 2020. Notice that even as the market was making some significant moves down on massive trading volume, Virgin Galactic held its own, and even spiked some, as it worked as a nice hedge against how most stocks were performing at that time.
Data by YCharts
The company's conference call was a disappointment though, which might mean an opportune buying opportunity for investors who didn't get a chance to get on board for the first moon shot higher from the company.
Data by YCharts
As Virgin Galactic doesn't have any real numbers to update the public on, its future situation is pretty much the same today as it was right before its earnings call. The company updated investors that it had ~8,000 registrations of interest in flight reservations during the quarter, which, ultimately, means little, as I personally could easily go and sign up even though I have no actual interest in spending $250,000 on a 90-minute space ride anytime soon.
However, it is interesting to see how quickly the numbers can add up as 8,000 space flights add up to $2B in revenues, which is a little over ~40% of the company's current market cap. This is part of the potential of Virgin Galactic as Morgan Stanley sees Virgin Galactic as the commercial hypersonic winner in the space on account of its first-mover advantage. However, Virgin Galactic failed to update investors on specifics for its much-anticipated upcoming spaceflight timetable resulting in its recent pullback. This means that investors can now buy the stock at an ~34% discount from recent highs, even though I would expect an update on the company's timetable on or before its next conference call.
Data by YCharts
A cult following and the potential for massive stock moves mean that Virgin Galactic might have the potential to raise future funds at much higher valuations than it could just mere months ago. Take Tesla, for example, which recently experienced a massive upsurge in stock price that left many investors and analysts breathless.
Data by YCharts
Tesla is a much loved and hated cult stock, that Virgin Galactic might model in the future, that raised ~$2B in its latest capital raise. Notice that the stock rallied even after its February 13th announcement as investors, ultimately, came to the conclusion that a capital raise at that time was a terrific idea. Even additional shareholder dilution was perfectly acceptable at that time as the cash raise helped to bolster the company's promising future prospects.
Data by YCharts
Virgin Galactic could experience similar future behavior, especially once it gets its spaceflight timetables for commercialization set up later in 2020. It now has two structurally complete spaceships out of its planned three to begin official commercial operations with 5 total ships for scale planned by 2023.
Slide from Virgin Galactic's Q4, 2019 Earnings Presentation.
Right now, it is nicely positioned, after its October 25, 2019, merger with Social Capital Hedosophia Holdings Corp. (IPOA), to make it to official commercialization after it raised an additional $452M coming public. This should be enough capital to give its commercial space flight aspirations a fighting chance as the company had a net loss of $73M last quarter. With 5 ships planned by 2023, achieving scale over the next few years should allow the company to drop prices and significantly widen out its current target base of $10+ millionaires that are currently growing at a CAGR of 6%.
Slide from Virgin Galactic's Q4, 2019 Earnings Presentation.
Virgin Galactic's monopolistic position as, currently, the only publicly-traded future commercial space flight company gives it the ability to potentially trade like a cult stock such as Tesla. This means the potential for rapid and marked volatility in the stock as investors trade rapidly in and out of the stock on news and headlines instead of fundamentals. As the potential winner in hypersonic space flight as it grows into scale, Virgin Galactic has the cash and resources to make profitable commercial space flight a reality with a growing target base even before it starts to lower prices. I have started a small position in Virgin Galactic with a couple of tiny buys as I plan on dollar cost averaging my current position into a larger position over the course of 2020. Best of luck to all.
This article was written by
Analyst’s Disclosure: I am/we are long SPCE, AMZN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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Comments (35)
Funny how Robinhood was down all day! On a major up day in the markets. So? No trades could happen to get people in or out of trades. What a Sham.
I knew it was a sham when I saw who they prey on. Younger adults...Someone should investigate this company.
It’s a very scalable business. Most of the heavy financial lifting took place, before the $11.50 debut. I know it wasn’t a standard IPO, but that was also genius. I think the Tesla comparison comes from all the old bear arguments over the last 10 years. Tesla is the next Tucker, etc, etc All wrong. You are never going to get to the right valuation looking at last years 10-K. Have some vision.
