Should You Buy the Dip in Virgin Galactic Holdings?

In 2021, several growth stocks have lost significant momentum after stellar runs. As growth stocks generally trade at steep valuations compared to their revenue and earnings, it’s enticing when…

they are available at a lower multiple.

One such stock is Virgin Galactic Holdings (SPCE – Get Rating), which more than doubled in 2020 and is now down 15% year-to-date.  In fact, Virgin Galactic stock is now down 67% from all-time highs. SPCE is an aerospace company that develops human spaceflight for individuals as well as researchers in the U.S. It also manufactures air and space vehicles.

Given the recent pullback in stock prices, let’s see if SPCE is a buy right now.

What impacted Virgin Galactic stock recently?

On September 10, Virgin Galactic announced its plans to delay the Unity 23 flight mission by a few days due to a conceivable manufacturing fault in a module related to flight control. The Unity 23 was a mission that would focus on microgravity research. Virgin Galactic confirmed the defect was not in-house but part of third-party equipment.

SPCE was also impacted after Blue Origin successfully launched its second space flight that had noted Star Trek actor William Shatner onboard. In addition to Shatner, the all-civilian flight also had paying customers making it the company’s first commercial launch. Further, last week Virgin Galactic confirmed its first commercial launch (the Unity 23 mission) will now begin in Q4 of 2022.

This longer-than-expected delay might raise a red flag for investors who think that Virgin Galactic is losing the space race to its peers.

The bull case for Virgin Galactic stock

Shortly after Richard Branson’s flight the company priced bookings for its commercial flights at $250,000 per ticket. Virgin Galactic has now confirmed the minimum price per ticket has increased to $450,000 which suggests there would be higher priced bookings as well.

In an investor presentation prior to Virgin Galactic’s SPAC (special purpose acquisition company) merger, the company forecast to fly 1,565 passengers to space annually. In case these estimates are met, it will generate over $700 million in sales. As per earlier estimates (on ticket prices of $250,000), Virgin Galactic had forecast sales of $590 million and EBITDA of $274 million.

But as the ticket prices have almost doubled, it might lead to a tepid demand environment. Alternatively, investors should be optimistic given the company has managed to develop a pricing strategy at an early stage.

The final verdict

Bank of America has forecast the space industry to touch $1.4 trillion in the next decade, more than tripling in this period.  And Wall Street analysts expect

 

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