Virgin Galactic has recorded several successful test flights and has scored key contracts with NASA. But a December test flight failed to reach space. So is SPCE stock a good buy? For the answer, take a look at the space company’s earnings and stock chart.
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 blank check company 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 Nov.5, Virgin Galactic reported a third-quarter loss of 34 cents a share on zero revenue. Analysts expected a loss of 27 cents per share. That followed a 28-cent per-share loss in Q2. Cash and cash equivalents more than doubled to $742 million as of Sept. 30, up from $360 million on June 30, helped by a secondary stock offering.
Virgin Galactic is retiring the “One Small Step” on Dec. 31, saying participants have reached close to 900. In Q2, it had 700 refundable deposit payments from prospective passengers under the program, up from 400 in Q1.
But the company will reopen ticket sales following Virgin Galactic founder Richard Branson’s flight in 2021. He plans to be on the first commercial flight.
Wall Street has turned extremely bullish on the company. Seven out of eight analysts covering SPCE stock give it a buy rating despite Virgin Galactic not posting any revenue last quarter and with commercial flights at least months away.
On Dec. 14, Morgan Stanley backed its overweight rating, even after a rocket-powered test flight was aborted in midair. Analysts said it confirmed the spacecraft’s safety.
“While short-term speculation around the upcoming test flight catalysts has lifted the shares materially above our $24 price target, we believe SPCE shares offer potential to achieve our $54 bull case with successful execution of its test flights from here,” they added.
UBS began coverage on Virgin Galactic stock in September with a buy rating, and the analysts see the space tourism industry expanding to $38 billion per year by 2030. Bank of America initiated coverage on Virgin Galactic stock in September with a buy rating.
But Goldman Sachs broke with the rest of Wall Street and gave Virgin Galactic stock a neutral rating in October.
While it 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 that it sees a “huge opportunity” to apply high-speed global mobility technology to reduce travel time. Then-CEO George 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.
SPCE Stock Technical Analysis
Virgin Galactic stock broke out from a 22.64 buy point in October but sold off days later. Shares fell more than 8% below the entry, triggering a sell signal for limiting losses. Shares rallied but tumbled again in December after the powered test flight failed.
The relative strength line has drifted lower since February but has been flat for the last three months before rising slightly in December on test flight hopes.
The stock has an Accumulation/Distribution rating of A-, indicating net buying of shares by institutional investors.
Virgin Galactic stock is ranked No. 21 in IBD’s Aerospace/Defense Group.
Test Flight Fails To Reach Space
Virgin Galactic aborted a powered test flight of its spaceplane on Dec. 12, delaying a key step needed to start commercial service.
“The ignition sequence for the rocket motor did not complete,” Virgin Galactic tweeted after the test. “Vehicle and crew are in great shape. We have several motors ready at Spaceport America. We will check the vehicle and be back to flight soon.”
CEO Michael Colglazier tweeted that after the release from the mothership, Unity’s 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. Virgin Galactic said it would redo the test flight before advancing to a second test flight with mission specialists in the cabin. But the company didn’t give a timeline as to when the next flight window would open.
Ahead of the aborted test flight, Virgin Galactic said it hoped to see its first commercial flight in Q1 2021. The coronavirus pandemic has also been weighing on the flight schedule. Virgin Galactic had to close a test flight window in November due to spiking cases in New Mexico.
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, 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.
In 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.
Recent management changes have affected SPCE stock. As commercial travel nears, Virgin Galactic appointed Michael Colglazier as the new CEO in July. 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.
“Although clearly different companies, Virgin Galactic and Disney parks have similarities in many respects,” he told analysts during a conference call in August.
“Both companies share a central focus on safety. This is built into the engineering operations and processes and culture here at Virgin Galactic. And this is something I’m very familiar with from my time at Disney. Like Disney, Virgin Galactic will provide amazing transformational customer experiences.”
Former CEO Whitesides filled the newly created role of chief space officer. In that job, he oversees the company’s high-speed mobility and orbital spaceflight programs.
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 early next year but the coronavirus pandemic and testing delays could impact the timeline.
Bottom line: Virgin Galactic stock is not a buy under CAN SLIM criteria as it is not in a buy zone and no discernible new chart pattern has formed.
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Follow Gillian Rich on Twitter @IBD_GRich for space news and more.
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