Virgin Galactic Stock: Too High, Too Fast?

Virgin Galactic stock (NYSE:SPCE) rallied by over 38% on Friday, with the stock now up by almost 107% over the last 21 trading days. The rally comes as the U.S. Federal Aviation Administration gave the company a full commercial launch license following its successful May test flight (See below). This effectively means that Virgin Galactic will be able to carry customers into space when it is ready to do so. The company has three other planned test flights, the next of which is likely due in early July and as things stand, commercial operations are likely to begin early next year.

While the news is certainly encouraging, with Virgin becoming the first company to have a spaceplane approved to fly customers, we think the stock looks very speculative at current levels of about $56 per share and a market cap of over $13 billion. Consensus revenue estimates for 2022 stand at just about $50 million, meaning that the stock trades at over 260x forward revenues. Although the successful test flight and the FAA approval mean that questions surrounding the viability of Virgin’s commercial business have been addressed, the longer-term growth outlook isn’t exactly clear. Virgin has sold just about 600 tickets on future flights at prices between $200,000 and $250,000 each meaning that its total revenue backlog likely stands at under $150 million at present, although it should grow as it reopens ticket sales which it closed in 2014. Moreover, the economics of a space business remains far from clear for investors. Separately, the markets could continue to pivot away from futuristic stocks such as Virgin Galactic as interest rates continue to rise and this could also put pressure on the stock.

Trefis Machine learning engine estimates that Virgin Galactic stock has a strong chance of decline over the next month, after rising by about 107% over the last 21 days. See our analysis on Virgin Galactic Stock Chances Of A Rise for more details.

[5/24/2021] Is Virgin Galactic Stock A Buy After Successful Test Flights

On Saturday, Virgin Galactic conducted a successful test flight of its VSS Unity spacecraft carrying two pilots, marking the company’s first test space flight in over two years and its third to date. Virgin’s test program has been delayed in recent quarters due to technical glitches, and the recent success should give investors some confidence that the development of the company’s SpaceShipTwo rocket system is headed in the right direction. Virgin Galactic still has another three remaining test flights to complete the development of its rocket system. The next spaceflight test will carry four passengers, followed by a third test that is planned to fly Virgin founder Richard Branson. If all goes well, commercial operations could begin in early 2022.

Virgin stock has already rallied by about 22% over the past two trading days after the company announced plans to conduct the spaceflight test, which investors had previously anticipated would be delayed beyond the month of May. While it’s likely that the stock could see further gains on Monday, we think the stock looks somewhat speculative at current levels of about $21 per share. A lot of things still need to fall into place before the company can scale up revenues, and profits are also likely a long way off. Moreover, the markets have largely turned away from futuristic stocks to more value and cyclical names to play the post-Covid recovery and this could also be a headwind for Virgin stock.

You can arrive at your own valuation for Virgin Galactic using our interactive analysis Virgin Galactic Valuation: Expensive Or Cheap? We value the stock at about $15 per share. See our previous update below for an overview of the key risks and potential upside from investing in Virgin Galactic stock.

[5/12/2021] Virgin Galactic Stock Worth The Risk?

Virgin Galactic, an aerospace company focused on suborbital spaceflight for private individuals and researchers, reported a larger than expected Q1 2021 loss on Monday, while noting that it would postpone a planned test flight that was due this month on account of some technical issues. Although the stock largely shrugged off the news in Tuesday’s trading, it remains down by about 20% year-to-date, and by about 70% from its February highs. So is this a good entry point for Virgin Galactic stock? While we still think the stock is slightly overvalued, trading at $18, a 20% premium to our $15 price estimate, the risk to reward trade-off has improved in recent months.

You can arrive at your own valuation for Virgin Galactic stock using our interactive analysis Virgin Galactic Valuation: Expensive Or Cheap?

Virgin has faced multiple delays with the development of its SpaceShipTwo spaceplane, which it intends to use for flying commercial passengers. While commercial service was initially targeted for 2020, this is now only looking likely by 2022 as the company has another four test flights remaining. The repeated delays mean that Blue Origin, backed by Amazon founder Jeff Bezos, is likely to be the first company to carry a commercial passenger on a suborbital flight, as it plans to fly its New Shepard rocket this July. Moreover, big Virgin Galactic investors also appear to be losing patience with the company. Chamath Palihapitiya – the chairman of Virgin Galactic, Richard Branson – the company’s largest shareholder, and ARK investments, run by star stock picker Cathie Wood, have been selling shares in the company in recent months.

That said, there are a few redeeming factors that make the stock worth a look. Demand for suborbital space flight is likely to remain strong, given the large and growing addressable market of ultra-high net worth individuals. Supply, on the other hand, is likely to remain constrained given that there are only a few other players, namely Blue Origin and SpaceX (which focuses on much pricier orbital tourism). Virgin has around 600 ticket holders who have paid as much as $250,000 each, despite the fact that it suspended ticket sales back in 2014 after a crash killed a test pilot. The company is likely to resume bookings this summer and that could prove to be a catalyst for the stock in the near term. Separately, the company is also looking at larger addressable markets, including developing a vehicle capable of supersonic travel.

[4/27/2021]

Virgin Galactic, an aerospace company focused on suborbital spaceflight for private individuals and researchers, has seen its stock correct by almost 60% from its February highs to about $22 per share, currently. The sell-off is driven by a couple of factors. Firstly, in late February the company decided to postpone the test flight of its SpaceShipTwo vehicle “Unity” from February to May, with the expected launch of its commercial services now pushed into 2022. Secondly, multiple high-profile investors including Chamath Palihapitiya – the chairman of Virgin Galactic, Richard Branson – the company’s largest shareholder, and ARK investments, run by star stock picker Cathie Wood, have been selling shares in the company. Moreover, with Covid-19 cases in the U.S. well off their highs, and vaccination rates picking up, investors are likely moving funds away from futuristic stocks to more value and cyclical bets and this has also hurt Virgin stock.

Overall, we still think Virgin Galactic’s stock looks somewhat speculative at current levels of $22 per share. It’s difficult to say with certainty whether the company will stick to its 2022 commercial flying timeline, given that it has pushed this roadmap multiple times while continuing to burn cash. You can arrive at your own valuation for Virgin Galactic stock using our interactive analysis Virgin Galactic Valuation: Expensive Or Cheap? We value the stock at about $15 per share.

[2/9/2021] Virgin Galactic Updates

Virgin Galactic, an aerospace company focused on suborbital spaceflight for private individuals and researchers, has seen its stock rally by around 130% year-to-date, currently trading at about $54 per share. There are a couple of factors driving the surge. Earlier this month, the company announced that it will carry out a test flight of its SpaceShipTwo suborbital spaceplane in mid-February after a technical problem forced it to abort a launch attempt in December. Based on Virgin Galactic’s previous comments, it will likely have two more spaceflight tests before it commences commercial flights. Investors are likely buying into the stock in anticipation of the outcome of these tests.

The stock has also garnered attention due to the GameStop-Reddit short-squeeze saga. Virgin Galactic stock has a relatively high short interest of over 25%, and this is probably attracting some retail investors who see the prospect of a short squeeze. Thirdly, investment firm ARK Invest, which saw stellar returns on some of its exchange-traded funds through 2020, plans to launch a Space ETF soon. Although the fund’s exact holdings are not known yet, investors are likely buying into high-profile space names in anticipation of the ETF’s launch, and this could also be helping Virgin Galactic stock.

Overall, we think Virgin Galactic’s stock looks highly speculative at current levels. The stock trades at over 400x consensus 2021 Revenues, despite the fact that its commercial flying timeline has been delayed multiple times. You can arrive at your own valuation for Virgin stock using our interactive analysis Virgin Galactic Valuation: Expensive Or Cheap? We value the stock at about $20 per share.

[8/11/2020] Virgin Galactic Q2 Earnings & Other Updates

Virgin Galactic, an aerospace company focused on suborbital spaceflight for space tourists, published Q2 earnings last week. While the company’s financials are not very relevant yet, given that it has yet to begin commercial operations, there have been a couple of noteworthy developments in recent weeks.

Space Tourism Updates

The company indicated that it could begin commercial service of its spaceflight by early 2021, flying its founder Richard Branson. While this is behind the company’s previous 2020 timeline, the delay was largely expected due to the Covid-19 related disruption. The company continues to test its space flights and noted that it had now cleared 27 out of 29 Federal Aviation Administration milestones. The FAA clearance is key to receiving final approval to begin flights with commercial customers.

New Projects

The company also provided updates on some new projects. The company is working with Rolls-Royce to develop a supersonic aircraft that would be able to carry between 9 to 19 passengers, capable of traveling at about 3x the speed of sound. Separately, the company is also looking to expand its services to start flying customers to orbital destinations such as the International Space Station. The orbital flight is typically much more expensive and currently costs about roughly $50 million today (versus suborbital flights that are priced at $250k per ticket) ^[1]

Recent Fundraising

On Monday, the company raised about $460 million by selling 23.6 million equity shares in a secondary offering priced at $19.50 per share. The should considerably boost Virgin’s cash balance, which stood at about $360 million at the end of Q2 2020.

Interested in investing in Space-related stocks? Check out our theme The Final Frontier: Space Stocks To Watch, which includes publicly listed space companies such as Lockheed Martin (NYSE: LMT), Aerojet Rocketdyne (NYSE: AJRD), and Iridium (NASDAQ: IRDM)

[7/16/2020] Valuing Virgin Galactic Stock

Virgin Galactic is an aerospace company focused on suborbital spaceflight for private individuals and researchers. The company hasn’t been able to generate much buzz, unlike the Elon Musk-backed SpaceX, considering that it is still in the test phases and doesn’t generate meaningful revenues as of yet. That said, things are likely to change in the next few quarters, as it likely begins commercial space flights carrying paying space tourists from 2021, charging each passenger about $250,000. The stock currently trades at about $19 per share, translating into a market cap of under $4 billion. So what exactly are the factors driving Virgin Galactic’s Revenues And Valuation?

How Does Virgin Galactic Make Money?

• Virgin will primarily make money by carrying tourists on its space planes. Customers will be able to experience a few minutes of weightlessness and also see the curvature of the Earth’s surface.
• The company has signed up about 600 future passengers, taking deposits of about $80 million. It has indicated that roughly 9,000 more prospective customers had expressed interest as of April 2020.
• Virgin’s Spaceship Two space plane can carry 6 passengers and 2 pilots. While the company currently has one vehicle, that can be re-used, the second and third vehicles are expected by the end of 2020 and 2021. ^[2]
• If we assume 50 flights over 2021 at full occupancy, this would translate into 300 passengers carried for the full year.
• As the company charges customers about $250k per ticket currently, total passenger revenues would stand at about $75 million in 2021.
• Besides this, the company has also been generating some revenue by carrying payloads into space and if we assume that this will remain flat at about $4 million, total revenues would stand at $79 million for 2021.
• Our interactive analysis What’s Driving Virgin Galactic’s Revenue & Valuation? allows you to modify key drivers to arrive at your own estimates for the company’s revenue and stock price.

Virgin Galactic’s Outlook And Valuation

• Virgin Galactic is currently valued at a market cap of about $4 billion, or about $19 per share. This translates into a P/S multiple of about 50x based on our projected 2021 revenues.
• While this does make the company a risky bet, given that it has yet to generate meaningful revenue, the upside could also be significant.
• Demand for space tourism is likely to grow among high-net-worth individuals, as the technology matures and commercial flights commence. For perspective, UBS estimates that space tourism will be a $3 billion market by 2030. ^[3]
• There are larger markets that Virgin could eventually target using its space ships, including high-speed point-to-point international travel via outer space. This could pit the company against traditional long-distance airline flights. UBS estimates that this market will stand at about $20 billion by 2030.
• There could be a scarcity premium at play as well. While the broader space exploration sector has seen a lot of interest in recent months after privately-held SpaceX launched its first manned mission in late May, Virgin is the only publicly listed commercial human spaceflight company.
• For perspective, SpaceX was valued at about $36 billion as of its February funding round. (related: What Is Driving SpaceX’s Revenues & Valuation?)

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