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SPCE: Will Virgin Galactic Come Back to Earth?

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When Virgin Galactic Holdings (SPCE) first went public in late-2019, it was the beginning of what became “SPAC mania” in the markets. Indeed, 2020 could be dubbed the year of the SPAC. For companies with little to no income looking to raise capital to fund their growth-oriented businesses, last year was the year to do it.

Undoubtedly, Virgin Galactic is one of the most aspirational companies to choose to go public via SPAC. Sure, this company was one of the first high-profile large-cap companies to do so. However, one could argue that Sir Richard Branson’s choice of listing vehicle paved the way for the dozens of SPACs we’ve seen materialize of late.

That said, a lot has happened since the company’s reverse merger. Let’s dive into what’s become of SPCE stock, and whether this company could rocket higher, or come back to earth. (See Virgin Galactic stock charts on TipRanks)

Retail Interest Strong with SPCE

Indeed, SPCE has been a meme stock favorite of investors for some time. The company’s short interest ratio of around 20% has been enough to entice various retail investors to take a shot at grabbing a slice of a potential squeeze. This year, we’ve seen two marked spikes, once during the initial short squeeze mania in late-January, and again prior to Branson’s Virgin Galactic flight a few weeks ago.

Of course, the spike in June coincided with some rather important news from the FAA. Virgin Galactic was granted essential licensing to fly passengers into low orbit. This news paved the way for Virgin Galactic to be the first company to operate a commercial flight into space in the U.S. (See Space Stock Comparison on TipRanks)

However, since this flight, shares of SPCE stock have surprisingly lost 40% of their value. Retail interest was seemingly not enough to offset a massive $500 million stock offering that the company announced after the flight.

It appears retail investors feel a bit let down from this move. Indeed, it’s hard to squeeze a stock that is issuing more shares. Retail investors can only buy so much, and the creation of new shares dramatically downgrades the probability of a short squeeze. 

Additionally, many investors may have viewed this initial space flight as purely a PR or marketing stunt. By boosting the company’s stock price, Virgin Galactic could extract more value from the market, and ultimately issue less shares. That’s a logical way to look at this unfolding of events, but nonetheless a letdown for earlier investors in this endeavor.

Accordingly, it appears many of the retail investors banking on a squeeze have moved elsewhere.

However, all hope is not lost.

Capital Raise Could Provide Necessary Growth Capital

The flip side of the argument that this capital raise is a net negative for SPCE is the idea that the company will use the money wisely. That’s not necessarily a new concept – growth companies like Virgin Galactic require a lot of capital to get started. If we’re going to see commercial space travel become a possibility, a lot of money is going to need to pour into this sector.

Virgin Galactic is burning a lot of cash right now to make this a possibility. The company’s prospects of making space travel affordable implies scale, which requires capital. Should Virgin Galactic be the first to scale its space tourism business to an affordable (and profitable) level from a price point perspective, all bets are off as to how high this stock can fly.

What Analysts Are Saying About SPCE Stock

According to TipRanks’ analyst rating consensus, SPCE comes in as a Moderate Buy. Out of 11 analyst ratings, there are four Buy recommendations, six Hold recommendations, and one Sell recommendation. 

As for price targets, the average Virgin Galactic price target is $36.90. Analyst price targets range from a low of $18 per share to a high of $51 per share.

Bottom Line

More than anything, Virgin Galactic is about a pure play on the future that investors want to see. Everyone and their mother wants to go to space. The ability to do so in a manner which will not require selling the house is something that inspires ideas of grandeur among investors.

However, the degree to how much potential long-term growth is already priced into this stock is a whole other question.

Disclosure: Chris MacDonald held no position in any of the stocks mentioned in this article at the time of publication.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.

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