Richard Branson and his crew reached the edge of space on Sunday aboard Virgin Galactic’s Unity 22 spacecraft.
Courtesy of Virgin Galactic
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Virgin Galactic stock tumbled Monday morning, the day after Richard Branson’s company completed the world’s first space tourism flight. That isn’t as odd as it seems.
Shares in
Virgin Galactic
(ticker: SPCE) rose 217% in the two months ahead of Sunday’s flight and climbed about 9% in Monday’s premarket trading. But shares fell around 11% soon after the market open. The
S&P 500
and
Dow Jones Industrial Average
were up 0.3% and 0.4%, respectively.
The stock’s move feels odd given the success the company had on Sunday. The landmark flight to the edge of space opened up a new frontier for commercial space travel in a race between billionaires that has captivated investors. Founder Branson signed the company’s astronaut log as astronaut 001.
But the stock’s move may simply be another example of an old Wall Street adage: “Buy the rumor, sell the news.” It’s important to remember that the market always looks ahead and will discount tomorrow’s news today. That’s why stocks make big, discontinuous jumps when things don’t go as expected.
That happened earlier this year. Unexpected test delays cratered Virgin Galactic stock in early May, leaving investors with no guidance on when testing would get back on schedule. Testing resumed, without warning, and shares jumped. Then, Branson’s test flight was announced.
Shares rose about 7% between the flight announcement on July 1 and this past Friday. Monday’s decline means shares are down about 4% since the flight was announced. Still, Galactic stock is up about 25% over the past month.
Selling the news doesn’t mean there is a cadre of traders selling shares. On Monday, there are simply no more buyers willing to pay higher prices for Virgin Galactic stock now that its big catalyst has passed.
The drop has nothing to do with the long-term direction of Virgin Galactic. That will be based on the success Galactic has in growing space tourism. “A top priority for the company [in coming years] will be to create a thriving space tourism industry,” Canaccord analyst Ken Herbert told Barron’s on Sunday.
Herbert rates Virgin Galactic shares Buy with a price target of $35. He set that price target in May when Galactic stock was at about $27 a share. Year to date, Galactic stock is still up more than 80% and a lot of the company’s success is already reflected in the share price.
The successful trip is a landmark moment in the space tourism race, but there are many more expected.
Amazon.com
founder
Jeff Bezos
plans to make his own flight to the edge of space on July 20 in his Blue Origin New Shepard capsule.
There is more competition to come, as
Tesla
Chief Executive
Elon Musk
is planning a number of SpaceX missions, taking passengers on longer trips, with the first scheduled for September.
Write to Callum Keown at callum.keown@dowjones.com
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