Will Virgin Galactic's share price take off on the back of Q2 earnings?

It’s said what goes up must come down, and this has been the case with the Virgin Galactic [SPCE] share price.

In the year to date, the Virgin Galactic share price has risen 34.3% to $31.87 at the close on 2 Aug, but the stock has had plenty of ups and downs in-between.

From opening trading at $23.96 on 4 January, the Virgin Galactic share price quickly raced to an all-time high of $62.80 on 4 February, pushed along by retail investors in the run up to planned test flight on the 13th of the month. The Virgin Galactic share came back to earth when it announced the test would be delayed until May, and pushed back commercial service to 2022.

News of further delays led the Virgin Galactic share price to swing to a 52-week low of $14.27 on 11 May — the first time the stock had been trading under $15 since June 2020 — before closing at $18.12, slightly up on the previous day’s close of $17.95.

 

The Virgin Galactic share price also fell in May, after its chairman Chamath Palihapitiya shed his stake in the company and Cathie Wood’s Space & Exploration & Innovation ETF [ARKQ] closed its position.

The Virgin Galactic share price reached as high as $57.29 in late June. In a case of “ buy the rumour, sell the news”, following the successful first fully crewed test flight on 11 July, Richard Branson filed to sell up to $500m of stock, and this has contributed to the Virgin Galactic share price falling again.

 

Can Virgin Galactic keep its buoyancy?

One of the questions levelled at Virgin Galactic, part of Richard Branson (pictured above) owned Virgin group, is whether the stock has soared too much.

Virgin Galactic generated no revenue in Q1 2021, as it did in Q4 2020. The company reported a net loss of $130m, or 55 cents a share, compared with a net loss of $377m in the same quarter in 2020– analysts polled by FactSet had expected a loss of 28 cents a share. The company did, however, end Q1 2021 with $617m in cash on hand, down from $679m in the previous quarter, but up 45.83% year over year from the $432m reported in Q1 2020.

 

For Q2 2021, investors can expect more of the same. No revenue is expected to be booked and, according to Zacks data, analysts are expecting earnings to be a loss in the range of 28 cents and 31 cents. The consensus of 30 cents would match the EPS reported in the year-ago quarter. Virgin Galactic has not issued any guidance.

 

Revenue goals are on the horizon

On an earnings call last year, Virgin Galactic CEO Michael Colglazier said each spaceport (the site for launching spacecraft) could bring in $1bn in annual revenue in the future, with flights totalling 400 a year. But it will be many years before this level of revenue is booked. The analyst consensus for 2023 revenue is $103.2m.

Virgin Galactic is expected to book $34.68m next year. With a current market cap of $7.22bn, it means the Virgin Galactic share price is trading at an out-of-this-world 207 times projected 2022 revenue as of the 29 July close.

 

Analysts are divided over whether the Virgin Galactic share price is too high.

Canaccord’s Ken Herbert told clients in a note reported by CNBC that Branson’s successful voyage into space is “a marketing opportunity … that will be impossible for the public to ignore”.

Herbert doesn’t see any near-term positive news ahead of the anticipated 2022 launch of commercial operations, but he also believes the recent sell-off is overdone. He raised his target for the Virgin Galactic share price from $35 to $48, implying an upside of 60% from its current level.

Bank of America analysts have a target of $41 for the Virgin Galactic share price, but are bearish on the stock, downgrading it from buy to underperform. They argued the Virgin Galactic share price would “ dwindle as more commercial space companies go public,” according to a June note seen by The Street.

As the space race heats up, there are a couple of ETFs to invest in to gain exposure to the industry. The passively managed SPDR S&P Aerospace and Defence [XAR], which has a year-to-date daily total return of 11.55% as of 2 Aug, and the actively managed SPDR S&P Kensho Final Frontiers ETF [ROKT], which has a return of 8.37% in the same period, are worth considering.