Richard Branson-backed Virgin Galactic (NYSE:SPCE) stock is trading at a 52-week low as it ramps up the commercial launch of its space tourism business. Does the prospect for consistent revenue generation make the once high-flying stock a buy?
Can Virgin Galactic Turn Space Tourism into a Viable Business?
SPCE shares have seen a rollercoaster ride since the middle of last year. The stock soared to a 52-week high of $57.51 late last June, a few days after it received its commercial operating license from the Federal Aviation Administration. However, this investor enthusiasm proved short lived.
Not long after making that peak, SPCE reversed course, dropping sharply in July and continuing a steady slide from there. All told, the stock has plunged 72% over the past 12 months and 45% since the beginning of 2022. The stock hit a 52-week low of $7.05 on March 8.
In comparison, the S&P 500 has fallen 9% over the past 12 months and 13% since the beginning of January. Peer comparisons are difficult as SPCE’s main competitors, Blue Origin and SpaceX, are privately held. The company also doesn’t fall neatly into the defense contractor or commercial airline categories.
Valuations are made more complicated by the fact that the firm is in the process of ramping up commercial operations for its space tourism business. As a speculative stock with no earnings, it falls into a category of company that has been treated with growing skepticism on Wall Street so far this year.
On Feb. 22, SPCE released a Q4 earnings report that was largely in-line with expectations. The company also revealed that it had around $1.3B in cash, thanks to a recent debt offering.
Currently, SPCE is in vehicle maintenance and enhancement mode, with both its mothership VMS Eve and spaceplane VSS Unity out of service until Q3. The company is actively planning to expand its fleet, with production details for new motherships expected later this year. Production of the company’s next-generation Delta class spaceplanes is expected to begin in the second half of 2023.
Meanwhile, passenger service with Unity and Eve is scheduled to begin during the fourth quarter of this year. A second spaceplane, VSS Imagine, is expected to be brought into service during the first half of 2023. Commercial service using the new Delta spaceplanes is targeted to begin in the 2025 to 2026 timeframe.
The new spacecraft will help cut turnaround time between flights significantly. Unity currently has a turnaround time of around one month, with two weeks for Imagine and only one week for the new Delta class spaceplanes, according to the company’s Q4 presentation.
SPCE has also cranked up the price of a 90-minute flight on one of its spaceplanes to $450,000 from $250,000, with a required deposit of $150,000. The company started selling tickets to the public on Feb. 15 and hopes to sell 1,000 tickets in advance of its first commercial flight, scheduled for Q4. According to Morgan Stanley, SPCE has already sold at least 700 tickets.
“Additional ticket sales continue to prove that there is more demand for space tourism, but do not change the execution risks facing the company,” said Morgan Stanley analysts in a note dated Feb. 15. They added that they didn’t see any near-term “meaningful” positive catalysts for the stock until Eve was put back into service later this year. The firm maintained its underweight rating on the stock.
Is SPCE a Buy?
Wall Street, in general, seems to echo Morgan Stanley's wait-and-see attitude towards SPCE, although many have expressed significant skepticism.
Analysts, on average, have a Hold rating on SPCE. Of the 11 analysts tracked by SA, four had a Strong Buy rating, four had a Hold, one had a Sell, and two rated the stock a Strong Sell. SA authors, meanwhile, rate the stock a Buy, on average.
SPCE’s Quant ratings indicate that the stock is showing strong sell signals. While SPCE was given an A for growth and a C for revisions, it also received a D on valuation, D- on profitability, and an F on momentum.
In a note issued Feb. 23, SIG Susquehanna said, “We are encouraged by SPCE’s progress on sales and the vehicle enhancement program, however, the long road to profitability includes risks and competition.”
SIG added that while it was maintaining its Neutral rating, it was lowering its price target to $9 from $22 “given our view that the market is now paying a significantly lower multiple on earlier stage companies.”
Bank of America Securities recently reiterated their Underperform rating and lowered their price target to $8.40 from $10 as they “await further evidence of progress toward consistent revenue generation and a regular flight cadence."
Canaccord Genuity was more positive, reiterating its Buy rating with a price target of $36.
“It is important for investors to understand that Virgin Galactic is a long-term investment story,” Canaccord analysts wrote in a note in February. “While the first half of 2022 may be light on key milestones to track, we believe that the completion of the spaceship/mothership upgrades in Q3 are the most important near-term execution catalysts for the stock.”
For a more in-depth look at SPCE, check SA contributors The Value Pendulum’s “Is Virgin Galactic a Buy After Opening the Spaceflight Ticket Window?” and Cestrian Capital Research’s “Virgin Galactic Stock: Can It Reach for the Stars?”