Virgin Galactic’s (SPCE) next test flight is under review adding new doubts as to when commercial service can begin. As the company continues testing, major investors have been selling their shares in recent weeks. 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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During its first-quarter earnings report on May 10, the commercial space company said work to correct electromagnetic interference (EMI) on the VSS Unity is complete and the spaceplane is ready to start pre-flight procedures. But there is a potential wear-and-tear issue with the Eve mothership that carries the spaceplane to high altitude. Virgin Galactic will give an update on the issue with Eve the week of May 17.
While the company turns its focus to Eve, some key investors are selling their shares.
Cathie Wood’s ARKX Space Exploration (ARKX) exchange traded fund sold 293,962 shares of SPCE stock on Tuesday. That followed a 275,204-share dump in April.
Her ARK Autonomous Technology & Robotics (ARKQ) ETF sold 557,955 shares of SPCE stock on May 10. The ETF sold 594,209 shares on May 7 and 496,600 on May 6.
Virgin Galactic founder Richard 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.
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.
Amid the sell-off following its latest warning on test flights, the stock is still well below its 50-day and 200-day lines, and no new pattern has formed.
Virgin Galactic has an IBD Composite Rating of just 11 out of a best-possible 99. The key rating combines five other IBD stock ratings. The stock also has a poor 42 EPS Rating.
The relative strength line had drifted lower since February before rising slightly in December on test flight hopes. The RS line is now at its lowest levels since December 2019.
The stock has a worst-possible Accumulation/Distribution rating of E, indicating more selling than buying by institutional investors.
Virgin Galactic stock is ranked No. 40 in IBD’s Aerospace/Defense Group.
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Test Flight Redo Pushed Back
Virgin Galactic aborted a powered test flight of its spaceplane on Dec. 12, delaying a key step needed to start commercial service, after a sudden halt in the rocket motor’s ignition sequence. Engineers found that the onboard computer that monitors the rocket motor lost connection. That triggered a fail-safe that halted the rocket motor’s ignition.
The test flight was supposed to complete data for the final two FAA verification and validation milestones.
After the aborted attempt, the SpaceShipTwo’s flight-control computer system was modified to reduce electromagnetic interference and prevent a reboot of the rocket motor. But those modifications unintentionally created additional interference that require changes to the flight control computer.
The EMI issues have been corrected and now Virgin Galactic is focused on stress issues with the Eve mothership.
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 now 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.
Once commercial flights begin, passengers will depart from Spaceport America, which is Virgin Galactic’s commercial space flight facility in New Mexico, near the U.S. Army’s White Sands Missile Range. The spaceport features a luxury lounge, mission control, and a briefing area.
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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, its powered test flight failed to reach space. Commercial service has been delayed until 2022. SPCE stock is no longer in buy range and the stock is well below 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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