When things get hectic here on planet earth, people sometimes look to outer space as the answer to humankind’s problems. In that vein of thought, some investors might look to Virgin Galactic (NYSE:SPCE) stock as an escape hatch from the global pandemic brought on by the novel coronavirus.
Is SPCE stock a smart way to sidestep the novel coronavirus crisis? That in itself is questionable. Besides, cautious investors must weigh the relative merits of the company, corona-resistant or not. So, the question remains: is Richard Branson’s brainchild of a business more than just a flight of fancy?
A Strange Upgrade
As eccentric as Branson is, there is one class of individuals even more inscrutable: stock market analysts. A case in point would be Morgan Stanley analyst Adam Jonas, who upgraded SPCE stock from “equal weight” to “overweight” but cut his price target from $30 to $24.
That’s a massive 20% price-target reduction. Try to wrap your head around that, and then reconcile it with Jonas’ “overweight” rating on the stock. He even admits that the company will face an “expected ~$16 million per month cash burn.”
While Branson’s fantasy might capture the imagination, there’s a fast-spreading pandemic happening here in the real world. Space tourism is a luxury, just like cruises and fine dining. People are reluctant to leave their homes, much less the atmosphere.
InvestorPlace contributor Tezcan Gecgil reported that a trip on a Virgin Galactic spacecraft is expected to carry a price tag of $250,000 per person. As businesses and individuals are forced to reduce expenses during the coronavirus pandemic, it’s easy to imagine that outer-space trips won’t be a fiscal priority even among the fabulously wealthy.
Lost in Space
Virgin Galactic might be a space-tourism pioneer, but its fiscal puzzle appears to be missing some pieces. While the aforementioned analyst claimed that the company’s balance sheet remains “intact,” Virgin Galactic’s filings to the Securities and Exchange Commission suggest otherwise.
Consider, for example, the Form 8-K reporting the so-called “highlights” of Virgin Galactic’s fourth-quarter and full-year 2019 financial results. There, it’s revealed that during the three months ending on Dec. 31, the company generated revenues of $529,000 and a net loss of $73 million.
Additionally, the adjusted EBITDA during that quarter showed a loss of $55 million. So much for the “intact” balance sheet, huh? There’s also a Form 10-K detailing the past three years’ worth of revenues or more accurately, the lack thereof.
In 2017, Virgin Galactic’s net loss was $138,187. The company posted a very similar net loss of $138,139 the following year, and 2019’s net loss came to $210,935. Not to throw a wet blanket on everyone’s space-flight dreams, but Virgin Galactic’s fiscal track record isn’t exactly astronomical.
Besides, there are too many things that could potentially go awry. As InvestorPlace contributor Larry Ramer deftly explained, Virgin Galactic’s insurance costs will undoubtedly be quite high. Moreover, Ramer points out, “it’s impossible to know whether a fatal accident will destroy the company’s business.”
The Takeaway on SPCE Stock
It’s perfectly fine to fantasize about traveling to outer space. Someday, this could be a profitable venture and a position in SPCE stock would, in theory at least, make sense. Until that time comes, let’s leave space travel to the intrepid and Virgin Galactic stock to the starry-eyed.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
