Insights

Why Virgin Galactic Shares Are Grounded Today

What happened
The long-awaited launch of Virgin Galactic Holdings (NYSE: SPCE) commercial service has been pushed back once again. Investors are in no mood to hang around and wait, sending the shares down as much as 15% in Friday trading.
So what
Virgin Galactic captured investor imagination with its plans for a space tourism venture, but the company over the past few years has found out the hard way that conquering the Earth’s gravity pull is a difficult and time-consuming endeavor. The company had originally hoped to begin scheduled service in 2020 prior to founder Richard Branson’s 70th birthday, but after a series of delays has still done nothing more than a series of test missions.
Image source: Virgin Galactic.

The company earlier this year said it was “on track and on schedule” to begin service by the end of 2022, but on Thursday pushed that target into the first quarter of 2023 due to supply chain and labor issues.
“Against a backdrop of escalating supply chain and labor constraints, our teams are containing the majority of these issues to minimize impact on schedules,” CEO Michael Colglazier said in a statement. “We look forward to returning to space in the fourth quarter and launching commercial service in the first quarter of next year.”
Virgin Galactic also said it lost $0.36 per share in the first quarter on revenue of $319,000, compared to analyst expectations for a $0.32 per-share loss on an expected $120,000 in revenue.
Now what
Given the risks of space flight, it is certainly wise for the company to be cautious and not rush. However, the space tourism market is now more crowded than it was a few years ago, with Jeff Bezos’ Blue Origin seemingly leapfrogging Virgin Galactic. The longer the delays, the more risk there is for the stock.
The update prompted Canaccord analyst Austin Moeller to downgrade Virgin Galactic to a hold from a buy and lower his price target to $8, from $36. And indeed, caution seems warranted. It was only a few months ago that Colglazier seemed confident of the late 2022 timeline. It isn’t out of the question that the current first-quarter quarter 2023 target will also get pushed back.
Add in the risks that come with competition, and remaining uncertainty about how large the total addressable market is for six-figure tourist space flights, and there is a lot of reason for skepticism right now. If all goes to plan Virgin Galactic might still end up a business success, but those interested in buying in today should consider it a high-risk stock that is nothing more than a small piece of a well-diversified portfolio.
Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. –

What happened

The long-awaited launch of Virgin Galactic Holdings (NYSE: SPCE) commercial service has been pushed back once again. Investors are in no mood to hang around and wait, sending the shares down as much as 15% in Friday trading.

So what

Virgin Galactic captured investor imagination with its plans for a space tourism venture, but the company over the past few years has found out the hard way that conquering the Earth’s gravity pull is a difficult and time-consuming endeavor. The company had originally hoped to begin scheduled service in 2020 prior to founder Richard Branson’s 70th birthday, but after a series of delays has still done nothing more than a series of test missions.

Image source: Virgin Galactic.

The company earlier this year said it was “on track and on schedule” to begin service by the end of 2022, but on Thursday pushed that target into the first quarter of 2023 due to supply chain and labor issues.

“Against a backdrop of escalating supply chain and labor constraints, our teams are containing the majority of these issues to minimize impact on schedules,” CEO Michael Colglazier said in a statement. “We look forward to returning to space in the fourth quarter and launching commercial service in the first quarter of next year.”

Virgin Galactic also said it lost $0.36 per share in the first quarter on revenue of $319,000, compared to analyst expectations for a $0.32 per-share loss on an expected $120,000 in revenue.

Now what

Given the risks of space flight, it is certainly wise for the company to be cautious and not rush. However, the space tourism market is now more crowded than it was a few years ago, with Jeff Bezos’ Blue Origin seemingly leapfrogging Virgin Galactic. The longer the delays, the more risk there is for the stock.

The update prompted Canaccord analyst Austin Moeller to downgrade Virgin Galactic to a hold from a buy and lower his price target to $8, from $36. And indeed, caution seems warranted. It was only a few months ago that Colglazier seemed confident of the late 2022 timeline. It isn’t out of the question that the current first-quarter quarter 2023 target will also get pushed back.

Add in the risks that come with competition, and remaining uncertainty about how large the total addressable market is for six-figure tourist space flights, and there is a lot of reason for skepticism right now. If all goes to plan Virgin Galactic might still end up a business success, but those interested in buying in today should consider it a high-risk stock that is nothing more than a small piece of a well-diversified portfolio.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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