Uh oh! Bought into the hype on Virgin Galactic stock? You may be feeling the pain today. As of this writing, the stock is trading around $26, down 17% on the day. You may be asking, “what is going on?” Well, you’re in luck. At AFN, we try to calmly analyze the technicals and news in real time to plan for the future. Below we will analyze the current situation: Why Virgin Galactic Stock (SPCE) is Getting Destroyed Today.
Let’s see what happened today to cause the stock to get crushed.
According to a CNBC article on the subject:
Virgin Galactic’s stock fell in premarket trading after the space tourism company cut short its latest spaceflight test mid-launch on Saturday due to an engine ignition issue.
“After being released from its mothership, the spaceship’s onboard computer that monitors the rocket motor lost connection. As designed, this triggered a fail-safe scenario that intentionally halted ignition of the rocket motor,” Virgin Galactic CEO Michael Colglazier said in a statement.
The company expects to repeat the spaceflight attempt from its operating base at Spaceport America in New Mexico.
That doesn’t sound too bullish.
To be fair, those who bought around the lows (low $20 range), are still technically in the green.
SPCE Stock Financials
Although the stock dipped pretty hard today, we are still bullish overall.
This may sounds ridiculous, considering they just failed hard on a launch.
Additionally, the company does not have much in the way of revenue currently.
See their assets and financials below:
Based on their balance sheet, Virgin Galactic purports to have about 845 Million in total assets. This is a combination of their intellectual and physical properties (aka spaceships).
In terms of revenue, not much to go on.
The latest 10Q actually shows a gap in revenue for the latest quarterly release.
Essentially, the company is not making money, while burning tons of cash trying to get these rockets in the sky.
However, it should be noted they did not burn as much cash the latest quarter.
SPCE Stock Forecast
All of this news is here and now.
We invest for the future. And what is the future?
Space Travel, of course.
May sound science fiction, but clearly investors want a piece of the future action.
SPCE is essentially a revenue-free, cash burning machine.
One would assume the stock would be worthless…but it’s not.
Space is the next frontier in corporatelandia.
According to Morgan Stanley:
Near term, space as an investment theme is also likely to impact a number of industries beyond Aerospace & Defense, such as IT Hardware and Telecom sectors. Morgan Stanley estimates that the global space industry could generate revenue of more than $1 trillion or more in 2040, up from $350 billion, currently. Yet, the most significant short- and medium-term opportunities may come from satellite broadband Internet access.Space: Investing in the Final Frontier, Morgan Stanley Research
Here is a visual look at their projections:
According to the Smart Money (Big Banks), the “Global Space Economy” is going to be yuge.
So big, they are projecting the number in the trillions within a few decades.
Remember, when they do that, they are probably being conservative.
We live in an exponential age.
And at this point on the exponential curve, space travel, communication, hardware, etc.
The reason I personally am taking this “global space economy” argument seriously is almost entirely based on Elon Musk.
Mr. Musk, the genius billionaire, does not build multi-billion dollar businesses for his health.
He does it to progress human society – and makes a lot of money in the process.
Elon’s entire twitter feed features SpaceX projects almost exclusively of late.
Ascent to the Heavens pic.twitter.com/oGgsw88YRZ— Elon Musk (@elonmusk) December 14, 2020
His latest post shows a rocket taking off.
While this has nothing to do with Virgin Galactic stock getting destroyed today, it does provide a crystal ball to the future of travel.
Space travel, in particular.
SPCE has many competitors out there, whether direct or indirect.
These companies are extremely important, especially if you are looking for strong long term gains.
These competitors include:
- Boeing (BA)
- Lockheed Martin (LMT)
- Maxar (MAXR)
- SpaceX (not yet public, acquisition by TSLA?)
- Blue Origin (not yet public)
- Procure Space ETF (UFO…if you are feeling boring)
While there are not that many publicly traded space stocks…oh wait, that is super bullish.
When there are few competitors in a space, money usually rushes in to capture what they can.
Monopolies > Competition
The greatest example of this is Tesla.
Just the past year, electric vehicle stocks have gone completely bananas.
And they will probably continue to do so, as speculated in this TESLA article.
That particular article was written when Tesla trading around $400, now currently $650.
In other words, 65% of the way there to our price target.
In any case, the truth is that monopolies are better than competition, every day of the week.
With so few space companies out there, we speculate that, at some point, there will be a massive 1000%+ run on virtually anything that is related to space stonks.
This is because, as aforementioned, monopolies are better than competition.
The fewer companies out there, the more money will be poured into each one.
Case in point, the MONSTER speculative run on electric vehicle stocks in 2020.
Companies like TSLA rose 1000% from the March lows.
BLNK is up over 1000% from the lows, and is now a titan of the EV charging industry game.
NIO, with its eye-popping 2000% gain, good work to anyone that stayed in on that one.
And plenty of others, including many of the SPACs.
Moral of the story…industry stocks run as a whole, usually when everyone is least expecting it.
For those reasons, we believe SPCE will have its day, and do not even worry about these day to day volatile drops and pops.
No need to worry if you bought into the hype on Virgin Galactic stock. You may be feeling the pain today, but its always good to get a wider frame of perspective.
Although SPCE stock is down significantly today, we believe this price level is just the beginning of the birth of a new industry.
This is a potential trillion dollar industry, and will likely expand at light speed (no pun intended) for the foreseeable future.
Keep watch of “space economy” developments, we believe it will be worth your time.
In the mean time, here’s a cool space video from Virgin Galactic.
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