Virgin Galactic’s (SPCE) successfully landed a powered test flight of its SpaceShipTwo spaceplane on May 22, a key step ahead of commercial service. So, is SPCE stock a good buy? For the answer, take a look at the space company’s earnings and stock chart.
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The company launched SpaceShipTwo with two pilots and NASA Flight Opportunities research payloads, before it landed over an hour later. Virgin Galactic aborted a prior attempt on Dec. 12, after a sudden halt in the rocket motor’s ignition sequence.
The flight was needed to obtain the final data points needed for FAA approval of commercial passenger service. Virgin Galactic previously said that following the successful completion of the test flight, a second test flight will include two pilots with a full cabin.
A third flight will include founder Richard Branson, with sales of seats to private astronauts reopening around the same time. And a fourth flight, the last of the test flight program, will be with the Italian Air Force to demonstrate Virgin Galactic’s capabilities for microgravity research and professional astronaut training.
On May 25, Morgan Stanley cut its price target on SPCE stock to 25 from 30 and kept an equal-weight rating, citing a slower expected ramp-up to commercial service.
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 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 May 10, Virgin Galactic reported a Q1 per-share loss of 55 cents, missing Wall Street expectations for a loss of 31 cents a share and widening from 30 cents a year ago, on no revenue.
Available cash slipped to $617 million from $666 million in Q4. The company expects free cash outflow to worsen to $60 million in Q2 from $50 million in Q1.
While the company 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 2020 that it sees a “huge opportunity” to apply high-speed global mobility technology to reduce travel time. Then-CEO 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.
More Space SPACs Ahead
Investors in Virgin Galactic stock could soon get another option to invest in space. Founder Richard Branson has hired Credit Suisse Group AG and LionTree LLC to find a special purpose acquisition company (SPAC) to take it public, sources told the Wall Street Journal in mid-March.
The news came as Virgin Orbit, a spinoff of Virgin Galactic, launched 10 satellites into space on Jan. 17 after a key test flight stumbled in May. Virgin Orbit uses Cosmic Girl, a modified Boeing 747, to take the LauncherOne rocket to an altitude of 35,000 feet, where it is released and ignited to continue on to space.
Virgin Orbit and Virgin Galactic were split in 2017 so Virgin Orbit could focus on low-cost launch services for small satellites for the U.S. military and other customers. It already has a $35 million three-launch deal with the Space Force and is working with the Air Force on launches from Guam.
The space sector is becoming increasingly more crowded, with more opportunities for investors outside of Virgin Galactic as blank check companies plan to take Rocket Lab, Spire Global, and Astra Space public.
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SPCE Stock Technical Analysis
SPCE stock broke out of a cup base with a 35.92 entry in late January. But on March 1, the stock made a “round trip,” erasing those gains, signaling that investors should close out their positions.
Shares then popped back up above their 50-day and 200-day lines following the successful test flight on May 22.
Virgin Galactic has an IBD Composite Rating of just 30 out of a best-possible 99. The key rating combines five other IBD stock ratings. The stock also has a poor 44 EPS Rating.
The relative strength line had drifted lower since February before rising slightly in December on test flight hopes and again on the completion of the test flight in May.
The stock has an Accumulation/Distribution rating of C-, indicating slightly more selling than buying by institutional investors.
Virgin Galactic stock is ranked No. 36 in IBD’s Aerospace/Defense Group.
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Key Investors Unload SPCE Stock
Cathie Wood’s exchange traded funds have launched a massive sell-off of Virgin Galactic shares.
ARKX Space Exploration (ARKX) began with 672,000 shares back in March and has been dumping shares by the hundreds of thousands in the weeks since. Now, it’s down to just 12 shares. Her ARK Autonomous Technology & Robotics (ARKQ) ETF sold 1.65 million shares during May and no longer has a position.
Branson sold about $150 million worth of shares, about 2.5% of the space tourism company, in mid-April, according to a recent regulatory filing.
In early March, Chamath Palihapitiya, the chairman of Virgin Galactic, tweeted that he sold his 6.2 million-share personal stake. The stock was worth about $213 million. But he still owns 15.8 million shares via his special purpose acquisition company, Social Capital Hedosophia Holdings, which took SPCE stock public.
Ramp To Commercial Service
With work still to be done on its current space plane, Virgin Galactic unveiled its SpaceShip III spaceplane in late March. SpaceShip III will undergo its own flight test program.
Then SpaceShipTwo, the WhiteKnightTwo mothership, and SpaceShipThree will undergo maintenance or improvement. That will result in a roughly four-month period of no flight activity. Virgin Galactic sees its first commercial flight in early 2022.
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.
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Virgin Galactic’s Space Ambitions With NASA
The company has also been busy racking up deals with NASA. In June 2020, 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.
Last 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.
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Management Shake-Up
On March 5, former CEO George Whitesides announced he was stepping down from his role as chief space officer less than a year after the position was formed.
Whiteside’s departure isn’t the only recent management change for Virgin Galactic. CFO Jon Campagna stepped down March 1 and was replaced by Doug Ahrens, who had served as CFO of chipmaker Mellanox.
Virgin Galactic named Swami Iyer as president of aerospace systems and Stephen Justice as vice president of engineering. Justice previously worked at Lockheed’s top secret Skunk Works research facility.
And in July 2020, Virgin Galactic appointed Michael Colglazier as the new CEO. 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.
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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 and its powered test flight reached space, commercial service has been delayed until 2022. SPCE stock is not in buy range and is just above key benchmarks.
Bottom line: Virgin Galactic stock is not a buy under CAN SLIM criteria as it is not in a buy zone.
Investors can check out IBD Stock Lists and other IBD content to find dozens of the best stocks to buy or watch.
Follow Gillian Rich on Twitter @IBD_GRich for space news and more.
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