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Sunday, February 5, 2023

Virgin Galactic Remains a Risky Play

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There’s something about space and the great unknown that has always intrigued us. Movies and novels have tried to quench our thirst, but our quest for the stars does not end there. Virgin Galactic (NYSE:SPCE) stock offers the only opportunity to invest in space travel at the moment. However, that’s not to say the company does not have any competition.

Elon Musk’s SpaceX and Jeff Bezos’ Blue Origin could pose significant threats to the company’s dominance in the sector. Investors don’t seem to be taking Virgin’s competition too seriously, considering the multiples at which its shares are trading.

With ticket prices costing $250,000 or higher, there isn’t a vast pool of potential customers that the company can tap into. There’s a finite number of multimillionaires who would want to visit space for vacations, and there’s not much data on exactly how many such people exist.

Not everything is gloom and doom for SPCE stock, though. Analysts are turning bullish on the stock, and the company’s recent hiring of Michael Colglazier, a former president of Walt Disney‘s (NYSE:DIS) Disney Parks International, is a welcome move.

However, there isn’t enough data on the space-tourism industry for me to rate SPCE stock a buy.

What Are the Positive Attributes of SPCE Stock?

Virgin Atlantic is a company that is about dreaming big. As I mentioned in my introduction, we have a fascination with space, and the company wants to capitalize on that.

Virgin Galactic is projected to generate $274 million of EBITDA in 2023. Apart from that, there are not a lot of financial forecasts that can be used to value the company.

Branson should be commended for his forward-thinking approach. As an innovator, he is thinking ahead of the curve, becoming a pioneer of the commercial space-travel industry. However, it will take a long time for Virgin to become a sustainable, profitable company. On a bright note, Branson has assembled a competent team to steer his company.

For example, the hiring of Colglazier, the former Disney executive will help Virgin’s brand. The move will also help the company make its Spaceport America camp exciting for its customers. The camp is part of the training travelers will have to undergo for their space trips. Colglazier handled the resorts and parks business for Disney. I am sure he will have ideas that will make the experience of attending space camp enjoyable and entertaining.

Meanwhile, George Whitesides is now serving as Virgin’s “chief space officer.” In that capacity, he will develop new business lines for the company. That’s a good move, since Whitesides served as CEO from the start of Virgin Galactic’s journey. He has a lot of institutional knowledge that is hard to replace, so the fact that he’s staying with the company is positive for Virgin Galactic. That’s why the move sent SPCE stock rocketing northwards.

Virgin Is Not in Better Shape Than Its Peers

Since SPCE stock remains the only way to invest in space travel at the moment, some would be tempted to think that it’s in a better position than some of its peers. Unfortunately, that is not the case.

Elon Musk’s SpaceX and Jeff Bezos’ Blue Origin are direct competitors that seem to have more firepower than Virgin Galactic. Both companies will likely wrest many investors away from SPCE stock once they launch their own IPOs.

Valued at $36 billion, SpaceX, the most famous space company in the world, plans to charge affordable prices for its space trips. The company has brought astronauts into space much more cheaply than anyone has previously.

We don’t know what Blue Origins will charge for its flights to space, but anonymous sources say it will be between  $200,000 and $300,000. If it’s tilted towards the former, it will cut into Virgin’s margins.

The Final Word on SPCE Stock

There is appropriately a lot of excitement about SPCE stock. Space exploration is a niche market, and it could generate high margins. However, people should temper their enthusiasm. There are several unknowns about space travel at this point. Investors should learn more about the company’s business model before buying the stock.

In addition, there are already two firms vying for market share in the sector, and they have more financial resources than Virgin Galactic. SPCE stock trades at a  trailing price-book ratio of 14.36 times. I think that’s quite steep . I would wait for things to get a little more clearly before buying any stocks in the sector. Several tech stocks have better fundamentals at this point.

Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio. Faizan does not directly own the securities mentioned above.   

Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio. Faizan does not directly own the securities mentioned above.   

Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio. Faizan does not directly own the securities mentioned above.   

Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio. Faizan does not directly own the securities mentioned above.   

Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio. Faizan does not directly own the securities mentioned above.   

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