What’s next for Virgin Galactic (NYSE:SPCE)? Like other “hot stocks,” SPCE stock cratered during the novel coronavirus sell-off in March. But, unlike high-flyers such as Tesla (NASDAQ:TSLA), the space exploration company’s shares haven’t set the world on fire during the past month’s stock market comeback.
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Granted, shares did bounce off their 52-week lows. Yet, since April, the stock has tread water between $15 and $20 per share. So, where has all the excitement gone? Why haven’t traders on Robinhood bid up this name again? Even as bankrupt companies like Hertz (NYSE:HTZ) have seen much love from users of that platform?
Chalk it up to two factors. Firstly, the recent success of Elon Musk’s rival space company, SpaceX, has taken some of the attention off this name. Secondly, stock sales by Virgin Galactic co-founder Richard Branson haven’t helped to inspire confidence in the stock’s near-term prospects.
With Branson unloading SPCE stock to shore up his business empire, many are waiting for the other shoe to drop. With these two factors at play, it’s easy to see why we haven’t seen the stock skyrocket like other exciting, yet highly speculative names.
So, what’s the play now? The company remains a “moonshot” wager on a potential space tourism megatrend. But that gamble may not be worth it at today’s prices. In short, shares may be worthwhile as a speculative buy—at a lower price.
SPCE Stock and the Rivalry
I find the Branson-Musk rivalry to be the most interesting part of the “Billionaire Space Race.”
You could say Elon Musk took Branson’s adventurer-entrepreneur shtick and ran with it. Like Branson, Musk parlayed his business success into full-fledged celebrity status. A few decades back, Branson was the larger-than-life business tycoon the press loved to write about. Today, it’s Musk in the spotlight, playing that same role.
However, this “changing of the guard” may not apply to their respective space companies.
As InvestorPlace’s David Moadel wrote that, SpaceX’s recent headline-grabbing doesn’t help or hurt the fortunes of SPCE stock. Elon Musk’s space exploration company may be making much progress. But both companies are a long way off from turning space tourism dreams into reality.
Granted, Virgin Galactic’s May rocket launch was a bust, but this company’s success isn’t going to happen in a matter of months. Or years, for that matter. It could take a decade for this company to scale into a profitable enterprise. Considering space tourism may be a multi-billion dollar industry by the 2030s, that means big potential for both Virgin and SpaceX.
However, this may not mean it’s time to buy shares today. Virgin Galactic may still have strong prospects. But, as Branson and other insiders unload shares, do you really want to be on the other side of the trade?
Should You Care Branson’s Selling Virgin Galactic Stock?
As I wrote last month, Sir Richard Branson may have to sell Virgin Galactic stock in order to save his business empire. Branson only intends to unload 25 million shares. But, as this commentator noted earlier this month, a total of 150.5 million previously-restricted shares have been freed up. In other words, other insiders/large shareholders can unload SPCE stock onto the public markets.
It remains to be seen whether markets have fully absorbed this development. If Branson is forced to sell more shares, or if other insiders unload some of their position, the stock could fall below its current price level.
But, insider selling shouldn’t be your only concern with this name. As our own Matt McCall wrote May 26, the company’s massive cash burn remains a major risk. In order to keep the lights on, this company will likely need to raise more cash via an equity offering. That would dilute current shareholders, reducing their potential share price upside.
Yet, don’t write off SPCE stock completely due to these factors. Shares right now seem pricey, when weighing risk against opportunity. However, if shares continue to dip, the risk/return proposition may improve.
Sit Tight for Now, But Be Ready To Pounce
At first glance, Virgin Galactic stock looks more like hype than a strong investment opportunity. Firstly, the space tourism market is at least a decade away. Secondly, Musk appears to be eating Branson’s lunch, given that SpaceX, not this company, is making the most headway. Thirdly, and most importantly, insider selling, coupled with massive cash burn and dilution risks, makes this stock look like a hard pass.
Yet, this company is still in its early stages. There’s plenty of time to get in on the ground floor. If shares fall back into the single-digits, consider a small position in SPCE stock. It’ll still be a moonshot, but with sufficient upside potential.
Thomas Niel, contributor to InvestorPlace, has written single-stock analysis since 2016. As of this writing, Thomas Niel did not hold a position in any of the aforementioned securities.
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