Down 30% year-to-date, space tourism company Virgin Galactic’s (NYSE:SPCE) stock looks like its grounded.
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SPCE stock is now trading at $9.40 a share, down about 70% in the last six months and 85% below its 52-week high of $62.80.
What was once a promising stock has crashed and burned, and the decline in the share price has only accelerated during January’s market selloff. The shares now trade below their October 2019 debut price of $11.75. The drop has been so swift and steep that it has led some analysts to question whether Virgin Galactic can continue as a viable company and if its stock will survive long-term.
While those kinds of predictions might be premature, there’s no question that Virgin Galactic’s stock has been brought firmly back to Earth.
The main issue impacting Virgin Galactic and its share price continues to be repeated delays to the launch of its commercial space flights. The space tourism company, based in Mojave, California, has repeatedly delayed its plans to begin flying customers into space since mid-2020. The schedule to begin bringing tourists into orbit has been pushed back about every six months for the better part of two years now.
The company achieved a milestone in July of last year when company founder Sir Richard Branson and three other company executives embarked on a test flight, sending SPCE stock briefly above $50 a share.
However, since Branson’s test flight, Virgin Galactic has been hit with more delays to its commercial space service that has left analysts scratching their heads and shareholders biting their nails.
Right now, Virgin Galactic has no revenue and is burning through $55 million to $65 million a quarter as it struggles to begin taking tourists into space at a cost of $250,000 per passenger. Some are questioning how long the company can survive given its lack of revenue, and if it will have the funds needed to take off by the end of this year as currently planned?
At last count, more than 600 people have registered to take a flight into space with Virgin Galactic, but regulatory and maintenance issues have kept the company’s spacecraft on the tarmac in the California desert. Earlier in January of this year, Virgin Galactic announced that it plans to raise $500 million through a convertible debt offering, which will lead to a stock dilution for shareholders. SPCE stock fell more than 10% on news of the debt issuance.
SPCE Stock Sale
Aside from the operational delays, lack of revenue and steady cash burn, the other issue vexing investors has been the large and repeated sale of SPCE stock by Sir Richard.
Last August, shortly after his test flight, Branson sold 10.4 million shares of Virgin Galactic at prices ranging from $25.75 to $34.39 a share, according to filings with the Securities and Exchange Commission (SEC). The August sale was worth $300 million. It brought Branson’s total sale of Virgin Galactic stock to $950 million since the company went public in 2019 via a special purpose acquisition company (SPAC). He previously sold stakes worth $504.5 million and $150.3 million in May 2020 and April 2021 respectively.
While Branson tried to dismiss concerns over his sale of SPCE stock. He claimed the sales are routine and have been made to put money into his various other businesses. However, some on Wall Street aren’t buying it. They’re saying it looks like Sir Richard might be getting out of the space tourism business before things get worse for Virgin Galactic.
To be sure, analysts have been lining up to downgrade the stock since last summer with investment banks such as Morgan Stanley (NYSE:MS) and Credit Suisse (NYSE:CS) lowering their ratings and price targets, citing a lack of progress and few catalysts on the horizon.
Wait For SPCE Stock To Take Off
The future of Virgin Galactic’s space tourism business is as murky as the Milky Way.
Repeated launch delays, debt financing, and the dumping of company stock by founder Sir Richard Branson do not inspire confidence. Neither does a 70% decline in the share price over a six month period.
The bottom line is that until Virgin Galactic successfully begins commercial space flights and starts to take wealthy tourists into orbit, there is no good reason to buy the company’s shares.
SPCE stock is not a buy.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.
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