Virgin Galactic’s share price looks to reach new frontiers

Virgin Galactic’s [SPCE] share price has taken off this week, boosted by hopes of a long-awaited return to space.

The space tourism company has been buoyed by hopes of a resumption in test flights of its spacecraft VSS Unity following “corrective” technical work.

This was further supported by an announcement that the company would go ahead with the next rocket-powered test flight for its SpaceShipTwo Unity craft on 22 May.

Virgin Galactic’s share price has climbed 27.8% between the 13 and 20 May.

Following two successful test flights last year and a partnership with NASA to make supersonic aircraft for non-military applications and procure transport to the International Space Station, Virgin Galactic’s share price soared.

It rocketed 303.9% from 20 May last year to a high of $59.41 on 11 February 2021. The price kept climbing in this period, despite a disappointing December test flight that failed to reach space because of issues with an onboard rocket motor computer.

However, Virgin Galactic’s share price spluttered to close at $26.53 on 8 March as further technical problems and COVID-19 restrictions in New Mexico — the location of its Spaceport America launchpad — delayed its next test flight in February.

The group, which posted a fourth-quarter loss of $74.1m in February, had hoped its founder, Sir Richard Branson, would shoot into space in the first quarter of 2021.

Ready for take-off?

Virgin Galactic’s failure to do so added to a list of false dawns. The company, founded in 2004, initially suggested it would launch space flights for paying customers in 2009, which moved to 2011, then 2017 and then 2020.

Instead, the group has had to watch competition from rivals such as SpaceX and Blue Origin, the latter of which is auctioning seats on its New Shepard rocket flight in July.

Virgin Galactic’s share price also took a battering following Branson’s move in April to sell over $150m worth of the company’s stock to help other parts of his business empire.

This followed the sale of stock by Chamath Palihapitiya, chairman of Virgin Galactic, who helped take the company public via a special purpose acquisition company (SPAC) in 2019.

Another blow came in May when, according to Investor’s Business Daily, Virgin Galactic said that its Eve mothership may be seeing some “wear and tear”.

Positive outlook

Much depends on future test flights. Even if the Unity does take off, it will be one of at least four — including a Branson test flight — needed before its space tourist trips can begin.

Both the company itself and market analysts don’t see this happening before 2022.

That will leave the company trailing Blue Origin, although, as Investor’s Business Dailynotes, Virgin Galactic believes the success of its competitor will “normalise the idea of human spaceflight to the market”.

"[Blue Origin's success could] normalise the idea of human spaceflight to the market" - Investor's Business Daily

There is certainly demand out there. Virgin Galactic boasts 600 signed-up Future Astronauts willing to pay $250,000 a ticket and, according to Technavio, the space tourism market is set to grow by $5.16bn between 2021 and 2025.

In its first quarter results, Virgin Galactic also revealed an improved net loss of $130m, down from $377m during the same period last year. It also unveiled a new spaceship called VSS Imagine as it looks to scale its fleet and improve turnaround times for future passengers.

Analysts remain positive. According to Market Screener, a consensus of nine analysts have an outperform rating and an average target price of $30.89, up 55.9% from Virgin Galactic’s share price at close on 20 May.

Analysts from financial insights company Trefis said “redeeming factors” for Virgin Galactic include its development of a supersonic aircraft in partnership with engine maker Rolls-Royce, as reported by Forbes.

However, some notable investors are losing patience.

Back in April, Ark Invest sold almost half its stake in Virgin Galactic in the ARK Space Exploration & Innovation ETF [ARKX]. It is now the fund’s lowest-weighted holding.

Virgin Galactic has relatively lacklustre weightings in other space-focused ETFs. It’s weighted at 2.9% in the UFO Procure Space ETF [UFO] and 2.68% in the SPDR S&P Kensho Final Frontiers ETF [ROKT], as of 20 May.

The UFO Procure Space ETF has a year-to-date daily total return of 12.36%, and the SPDR S&P Kensho Final Frontiers ETF has 3.16% (as of 20 May’s close).

For Virgin Galactic, uncertainty is an issue. “[Virgin Galactic] was destined to either do great things or fail spectacularly,” Lou Whiteman wrote in The Motley Fool. “If the [next] flight goes off without a hitch, that could be the rocket fuel the stock needs to reverse course. But… investors should be prepared for all outcomes.”