Every once in a while Wall Street consensus seems to converge on a speculative bet. At the moment that bet looks like Virgin Galactic.
So far this year, Virgin Galactic's [SPCE] share price has taken off over 187%. Last Wednesday, the share price jumped 23% in a single day. According to Market Rebellion co-founder Jon Najarian, call options have jumped from 12,500 in December to 175,000 in February. Volume Najarian described as "crazy".
It seems that traders betting big have swapped Tesla's electric cars for rockets. But with Q4 earnings on the horizon, is Virgin Galactic's share price about to crash on re-entry?
Why is Virgin Galactic's share price taking off?
Virgin Galactic is in a race to be the first company to take tourists into space. Up against it are Jeff Bezos’ Blue Origin and Elon Musk's SpaceX.
Of the three Virgin Galactic is the only publicly-listed company. That means traders wanting to get in on the space race have no option but to back Virgin Galactic’s share price.
But for all the big moves, the stock is volatile. Last Thursday, Virgin Galactic's share price plunged 18.2% as Morgan Stanley analyst Adam Jonas said shares could dip after earnings.
When does Virgin Galactic post Q4 earnings?
Why should investors care?
A place on one of Virgin Galactic's rockets doesn't come cheap. For a 90 minute trip into the stratosphere, would-be astronauts will need to pay $250,000. So far Virgin Galactic has received over 600 reservations and $80 million in deposits.
Mid-February, Virgin Galactic moved its SpaceShipTwo vessel to its base in New Mexico. Virgin Galactic will start test flights from the base, dubbed Spaceport America. If these go to plan, Virgin Galactic is one step closer to sending paying tourists into space.
For short-sellers, the current toppy valuation could represent an opportunity. With 24% of floated shares shorted (as of 30 January), it looks like institutional investors reckon the share price could have peaked.
What should investors expect in Q4 earnings?
Last quarter, Virgin Galactic pulled in a mere $800,000 in revenue. This was largely achieved by flying scientific payloads. For the first nine months of the year, the company has recorded a net loss of $138.1 million.
Q4 is unlikely to be any different. According to Yahoo Finance, Wall Street is expecting -0.19 earnings per share. Revenue is forecast to come in at $1.78 million. While that' s a 122% increase, it’s hardly earth-shattering for a highly valued stock.
Virgin Galactic's net-loss from Q3
Time to buy Virgin Galactic?
So is Virgin Galactic's share price due a correction? That's certainly a danger as the sharp gains could make it overvalued. Right now the stock is trading north of $33. Analysts have a 12-month price target of $19. That's a 43% downside on the current share price.
CNBC's Jim Cramer cautioned:
“[the rally] can’t be stopped right now, and these things tend to end badly — but you try to tell someone that.”
On the financials, Virgin Galactic carries a massive -4,081.89% operating margin (ttm), while EBITA comes in at -$178.8 million.
Morgan Stanley's Adam Jones has a $22 share price target on the stock. While that's a 35% downside, Jones is maintaining his "Overweight" rating on the stock. Jones argues that the stock could do with a "breather". Traders might want to do the same and wait until Virgin Galactic's share price comes back in from orbit.
|Operating Margin (TTM)||-4,081.89%|
|Quarterly Revenue Growth (YoY)||115.50%|
Virgin Galactic share price vitals, Yahoo Finance, 24 February 2020