3 . Virgin Galactic – The Next Tesla?

Virgin Galactic – the next Tesla? This article will discuss the future of Virgin Galactic (SPCE) and how it has the potential to boom in the future and lead the technological evolution of space travel and space tourism.

Welcome to Simply Economics. This article is part of a series that provides an in-depth analysis of the stock market for readers with strong economic knowledge. Click here for more articles in this series.

WHAT DO VIRGIN GALACTIC DO?

Virgin Galactic (SPCE) is a spaceflight company which is part of the Virgin Group. It was founded by billionaire Richard Branson and is trying to develop aircraft that will take passengers to the ‘edge’ of space. This form of tourism is known as space tourism and is becoming increasingly popular with those with wealth.

VIRGIN GALACTIC FINANCIAL OVERVIEW:

SHARE PRICE: $15.40 (at the time of writing)

MARKET CAP: $3.24B

P/E: N/A

NET INCOME: $-210.9M

REVENUE: $3.8M

WHAT MOVES THE PRICE?

Recently, COVID 19 has been the main factor in the movement of most shares. However, the main factor that affects the price is if the tests they perform on their aircrafts are successful. Before the COVID 19 crisis, Virgin Galactic had multiple consecutive successful missions where they tested various aspects of their aircraft. This caused the share price to hit new highs of $37.34. Share prices then crashed as production and tests had to come to a halt due the current COVID 19 crisis.

WHY BUY VIRGIN GALACTIC?

Buying shares now would be extremely speculative especially as the company is not making money and there is no guarantee that there will a profit anytime soon however, more than 600 passengers have already put deposits down for a seat on the aircraft, with tickets selling for $250,000. Although it is not affordable for the average consumer it is certainly attracting demand from the wealthy and shows there is a market for the product. Furthermore, as the technology becomes more accessible it will bring down operational costs and therefore ticket prices which will increase demand. It is estimated that the space tourism industry will be worth over $3B by 2030 (UBS).

Furthermore, recently there has been an increase in insider holdings in the company and over the past 12 months there has been little insider selling suggesting the directors of the firm feel Virgin Galactic is operating well.

Below is the chart of Virgin Galactic (SPCE)

As shown above, a strong base has been formed which, if tested will provide strong support. The price has been consolidating within a tight range for the past 3 months. It is now poised for a breakout however we feel a catalyst is needed.

The price has an initial price target in the $20-$25 which can be achieved when Virgin Galactic re-open reservation or when Richard Branson takes the first flight. The second price target range of $30-$35 can be achieved when the firm first shows profitability which will likely come in Q4 of 2021. All time highs, $40+ can be achieved when additional spaceplanes are completed. We believe these price targets to be fairly conservative.

WHY INVEST WHEN VIRGIN GALACTIC IS MAKING A LOSS?

Although Virgin Galactic is making a net loss, we still believe the company has room to grow in this new and demanding market. It is common for technology and high growth companies to run at a net loss for the first few years as they invest capital into developing new products. The expectation is that Virgin Galactic will continue to operate at a net loss in the short term in order to increase growth and revenue.

In conclusion, buying now would be a speculative buy and short-term volatility should be expected. The space tourism sector is relatively small at the moment, though it is expected to grow to $3B by 2030. Furthermore, with the $250,000 ticket price the plane ride isn’t accessible to most people which limits demand however, improvements in technology should cause a fall in prices and therefore increase in demand.

Feel free to ask any questions. Click here for more articles. For more articles in the Stock Market Analysis series, click here.