Entering text into the input field will update the search result below

Poor Odds For Virgin Galactic Bulls

Apr. 08, 2021 12:44 AM ETVirgin Galactic Holdings, Inc. (SPCE)33 Comments
Geoff Considine profile picture
Geoff Considine


  • Wall Street analysts are bullish on SPCE.
  • Annualized implied volatility is extremely high (97%).
  • Market-implied (aka option-implied) skewness is extremely high.
  • The market-implied outlook is bearish.
  • Even with high expected return, I'm bearish overall.

Commercial space transport may indeed be the future, but we don't yet know what that looks like. Setting expectations of how quickly the company can provide viable revenue is fraught with massive uncertainty. Even so, analysts have been setting aggressive price targets. On March 3rd, a Bank of America analyst reiterated a buy rating on Virgin Galactic (NYSE:SPCE) and set a price target of $50. On March 16th, Truist initiated coverage on SPCE with a buy rating and a price target of $50. The current share price is $29.24.

Price history and basic stats for SPCE (Source: Seeking Alpha)

The price of a stock is supposed to reflect the net present value of the future earnings of the company. Based on the volatility of SPCE, it is fair to say that the market has no confidence in estimating the future earnings stream. The stock ended 2020 at $23.73, climbed to a high close of $59.41 on February 11, 2021, and is now trading at $29.24. Even with the recent decline, the stock is up almost 115% over the past 12 months.

I am not going to opine on the probability of successful future test flights and how soon the company will be flying tourists into space. I am going to discuss the implications of two different consensus outlooks on the stock. The first is the Wall Street analyst consensus outlook. The second is the market-implied outlook (aka option-implied outlook) derived from the prices of call and put options trading on the stock. There is a very active options trade on SPCE, which makes the market-implied outlook especially interesting.

Wall Street Analyst Outlook

eTrade's consensus outlook combines the views of 9 ranked analysts who have provided ratings and price targets over the past 90 days. The consensus rating is bullish and the

This article was written by

Geoff Considine profile picture
Geoff has worked in quantitative finance for more than twenty years. Before entering finance, Geoff was a research scientist for NASA. Geoff holds a PhD in Atmospheric Science from the University of Colorado - Boulder and a BS in Physics from Georgia Tech. Neither Geoff Considine nor Quantext (Geoff's company) are investment advisors. Nothing in any commentary here on Seeking Alpha or elsewhere shall be regarded as advice.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (33)

Raf007 profile picture
16 Apr. 2021
After saw the G6 painted as space shuttle, dumped this stock. İ don't think it will bankrupt, i know it will bankrupt.
@Raf007 What did you expect, a flying saucer? A spacecraft that looks like something NASA made? Lol as long as it does what they’re advertising, how it looks shouldn’t matter at all. Goofy
SPCE stock price has nothing to do with timing of space flights-people on this site have too many thoughts on basically nothing that matters-IE no trading sense-this stock is a long or short trade only-time it right and bank some gains=goodluck!!
So you are basically saying SPCE will drop to its max pain implied by 2022 Jan options. What an expert
Wembley Fraggle profile picture
I suspect the options market for SPCE is just broken because nobody wants to own 100 shares. Keep your positions small, this is speculative.
doggiecool profile picture
Your thesis would have been spot on, when SPCE traded at $60.
At current levels ($28-$30) it a coin flip, all predicated on SPCE getting to space.
Very interesting assessment. But it's really not that complicated. There is one thing, and one thing only that matters, and that's Richard Branson successfully broadcasting from space. If and when that happens, all the math and logic in the world won't stop SPCE from going into orbit.
@Bobcat77 so it appears it is ok for the federal gov to have mileage and emission requirements for autos but it is fine for wealthy indiviuals to burn enormous amounts of fossil fuel and spew copious amounts of exhaust for a short joy ride? Anybody see an issue here?
CR Spencer profile picture
@trzeuske Thanks for the intro. That short ride allows one to get to a space with very little friction. Would you approve of cars that could coast for 12,000 miles? Experimentation is always wasteful until it leads to breakthroughs. Space based power would allow clean solar power without covering up nature. 12,000 mile jet trips use fuel continuously but rockets mostly only use power for the hundred or so mile accent. To achieve orbital velocity with 1 g acceleration, power might need to be applied for 15 minutes with a 45 minute glide. Contrast that to a 20 hour jet trip to the other side of the world.
Wembley Fraggle profile picture
Rockets don't use "fossil fuels" per se. If you do some research, you find that Virgin Galatic space planes actually "burn rubber" - they use a rubber-like fuel formally known as hydroxyl-terminated polybutadiene (HTPB).

So that's pretty badass.
CrankySandman505 profile picture
Its a "show me" moment, for sure. And I think they will do it. I was very encouraged with the Virgin Orbit.... engineered on the same basis. Great success.
@CrankySandman505 im with you. I wish they announce the flight already. This is a "show me" moment, especially for long term investors. The Virgin Orbit flight made me hope we was going to have our flight in Feb, but that didn't happen. If they make this flight, and i hope they do. We will see some good things start to happen. They also have some contracts with Nasa for payloads do they not? That's income if they do and can get those sent up and out. Plus Ultra Sonic flights they will be working on.
I spent over 25 years as a mechanical engineer both in R&D and in product engineering. And to look at SPCE, short term, is a crapshoot if you are on the outside.

The near term stock price has nothing to do with financials and everything to do with engineering. With a positive test flight, the stock will take off. With another negative test flight, it will tank.

Long SPCE, but with my fingers crossed.
@SteveKramp Me too. The idea of a piloted space plane being disastrous more often than a remote controlled 737max or a self driving car or an automated Blue Origin. filled with 8 tourist and a stewardess is silly. The long term viability of their business model could be based on pilot attrition. Too many G's a week. and boredom.
Don't care. Own a piece of a Space Transport company. Is that cool or what ☺️
budcorona profile picture
I wish one of you guys would write an article that could teach value people about growth. I love value investing but we need growth to round out our portfolios. I admit SPCE is highly speculative and not for everyone. Why don't you simply write an article about something you know instead of something you don't.
@budcorona well said...nowadays everyone is expert in stocks, cryptos,...thousands of thousands of articles and videos about stock markets...here you see there is something wrong...
Geoff Considine profile picture
@budcorona You raise an interesting question. I am managing my own portfolio and I want to consider stocks from a range of sectors and styles. As such, I have developed the process used in this post to allow me the benefit of the collective wisdom of the people who are the experts on an individual stock. Combining the consensus of the Wall Street analysts and the consensus of the options traders provides a view that adds value for my own investing. I write about this in the hope that others find this useful, too.
Literally all this company needs to do is have a successful passenger test flight and all of this can change very quickly.
And all it needs is one more test fail/crash or worse lose a tourist and they're dust.
kayshu profile picture
@trikidiki until the inevitable successful one
C-rad profile picture
@trikidiki that is literally true of every stock on the market haha
Rico Sid profile picture
All growth stocks are taking a massive dump since the last month. When the sector picks up, spce will run again. For now it’s dead meat
@Rico Sid The dump started on Feb 11 already :) I think we should be done soon with it.
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.