Is Virgin Galactic a Buy Under $25?

Virgin Galactic Holdings, Inc. (SPCE) is an integrated aerospace company that is focused on spaceships and related technologies for tourists and researchers in the United States. The Las Cruces, N.Mex.-based company came into the limelight after founder Richard Branson and a crew of five others reached the edge of space aboard SPCE’s rocket plane on July 11. However, despite the company’s long-awaited success, shares of SPCE have slumped 50% in price following the big day to close yesterday’s trading session at $24.61.

However, the stock has gained 54.6% over the past year due to its leading commercial space tourism industry position. 

SPCE is currently trading at a frothy valuation considering its growth prospects. In terms of its forward EV/Sales, SPCE is currently trading at 2,697.67x, which is 141,386.6% higher than the 1.91x industry average. In addition, the stock’s 2,985.31 forward Price/Sales multiple is 193,488.7% higher than the 1.54 industry average.

Let’s look at what could shape WPRT’s performance in the near term:

Equity Offering and Returns

SPCE administered an “at-the-market” equity offering program in July. The company filed a prospectus supplement to offer and sell up to $500 million of shares of the company’s common stock from time to time. The company ultimately generated $500 million in gross proceeds through the sale of 13.7 million (Approx.) shares of common stock. SPCE plans to use the net proceeds generated from the ATM offering for general corporate purposes, focusing on expanding its spaceship fleet.

However, it might take a while for the company to generate returns from the proceeds. In addition, such dilutive measures could exacerbate the company’s already negative shareholder returns.

Lawsuits

On August 6, Lifshitz Law Firm, P.C. announced that a class action complaint was filed against SPCE alleging that the company made false and/or misleading statements and/or failed to disclose certain information.

On July 27, The Klein Law Firm announced that a class action complaint had been filed on behalf of shareholders of SPCE alleging that the company violated federal securities laws.

Several other law firms are also investigating the company on various grounds.

Weak Financials

SPCE’s operating loss increased 17.2% year-over-year to $73.90 million in the fiscal second quarter, ended June 30. Its loss before income taxes grew 30.7% from the year-ago value to $94.03 million. The company’s net loss per share increased 14.7% year-over-year to $0.39. Also, SPCE’s net cash used in operating activities increased 5% from the same period last year to $113.47 million in the six months ended June 30.

Bleak Growth Prospects

A $2.19 million consensus revenue estimate for the current year indicates an 820.2% increase year-over-year. However, The Street expects the company’s EPS to decline 20% from the prior year to a negative $1.50 in the current year. In addition, the company’s EPS is expected to remain negative at least until next year.

SPCE’s EPS is expected to decline 60.6% per annum over the next five years. Furthermore, the stock missed the Street’s EPS estimates in three out of the trailing four quarters.

POWR Ratings Reflect Weak Fundamentals

SPCE has an overall F rating, which equates to Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

SPCE has an F grade for Stability and Value. Its relatively high 1.42 beta  and premium valuation justify these grades.

Of the 31 stocks in the Airlines industry, SPCE is ranked last.

Beyond what we’ve stated above, we have also rated SPCE for Momentum, Quality, Sentiment, and Growth. Click here to view all SPCE ratings.

View the top-rated stocks in the Airlines industry here.

Bottom Line

Over the past few months, SPCE  has achieved operational success, focusing on developing promising space vehicles and completing its first fully crewed spaceflight. However, the company’s progress is not yet reflected in its financials. Furthermore,  with burgeoning competition in the space industry, with Jeff Bezos’ Blue Origin and Elon Musk’s SpaceX making significant progress of late, SPCE might lose its first-mover advantage if it fails to address its  operational inefficiencies. Thus, we think the stock is best avoided now.

How Does Virgin Galactic Holdings, Inc. (SPCE) Stack Up Against its Peers?

SPCE has an overall POWR Rating of F, which equates to a Strong Sell Rating. Therefore, you might want to consider looking at its industry peer, SkyWest, Inc. (SKYW), which has a B (Buy) rating.

SPCE shares were trading at $25.45 per share on Wednesday afternoon, up $0.84 (+3.41%). Year-to-date, SPCE has gained 7.25%, versus a 21.39% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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