From post-SPAC euphoria to meme stock rally to a crushing seven-month slide, Virgin Galactic Holdings, Inc. (NYSE:SPCE) has experienced a wild three-year ride in the public markets. Shares of the space travel company took another dramatic turn on June 16th after the launch of a new commercial spaceflight service was announced.
Friday’s 16.5% gain for the depressed aerospace stock came in heavy volume. More than 152 million shares exchanged hands, Virgin Galactic’s highest daily trading volume since February 2022. Typically this is a bullish sign for the average stock, but Virgin Galactic is no average stock. Historically, past volume spikes have been followed by disappointing downturns, largely at the hands of skeptical short sellers.
Will this time be different?
Virgin Galactic’s first commercial spaceflight, slated for late-June, will be a scientific research mission focused on microgravity. This will be followed by a second commercial mission in early August. If all goes according to plan, monthly spaceflights could then begin as early as this Fall.
After the completion of a final test spaceflight last month, the news marks a pivotal milestone for billionaire Richard Branson who founded the company nearly 20 years ago. The company has a backlog of approximately 800 passengers lined up for private space excursions. Affluent travelers that can afford to fork over $450,000 for a vacation that’s literally ‘out of this world’ may have greater booking flexibility in the years ahead.
Regular space flights aboard Virgin Galactic would usher in an extraordinary era of space tourism that was unimaginable at the start of the millennium. The highly niche but potentially lucrative market is estimated to grow almost 40% annually through 2030.
Whether or not this translates into otherworldly financial performances for Virgin Galactic is the ‘great unknown.’
How Are Virgin Galactic’s Financials?
Although Virgin Galactic has a substantial order backlog, it has not yet been able to record any significant revenue. As such, its 2022 financials weren’t pretty. The $500 million net loss was 42% worse than the net loss of 2021 and added to an astronomical $1.78 billion accumulated deficit.
This year has been more of the same, with the company incurring a $159 million net loss in the first quarter. As the losses have mounted, Virgin Galactic has issued new shares to raise capital — at the expense of existing shareholders. There are now some 278 million SPCE shares outstanding compared to roughly 200 million three years ago.
Like everything else, Virgin Galactic’s spaceflight prices have increased in recent years. Tickets initially went for $200,000 but now go for almost a half million dollars. Taking the average of these two extremes ($325,000), the order backlog is worth an estimated $260 million. Even with a zero cost (and zero growth) assumption, it would take until the end of the decade to wipe out the accumulated deficit.
So while the longer term opportunity is undoubtedly huge, this high-growth market could require many years to become highly profitable. It could, therefore also take many years to attract fundamental investors.
Is a Virgin Galactic Short Squeeze Ahead?
For the stock to break out of its February 2023 downtrend in high volume is a bullish sign. Much of the buying activity was probably at the hands of nervous short sellers. Yet, with approximately 25% of Virgin Galactic’s float still held short and the stock price ideally cheap for the retail masses, the potential for an epic short squeeze event remains high.
Wall Street’s bearish tone around the space travel innovator could only add fuel to the fire. Of the 11 rating updates issued by analysts this year, four are sells, and seven are holds. And with several saying the stock is worth $3.00 at best, negative Street sentiment could easily spur social media platforms to get behind a squeeze.
In June 2021, a sustained short squeeze rally sent Virgin Galactic as high as $53.60 per share. Two years later, the ignition is starting to rumble again.
