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Finance

Is Virgin Galactic a Buy After a New Space Stock ETF was announced?

Founded in 2017, Virgin Galactic Holdings Inc. (SPCE) is an integrated aerospace company that develops human spaceflight for the private market and research community in the U.S.  As the world’s first commercial space line and vertically integrated aerospace company, SPCE’s spaceship operations include commercial human spaceflight and ferrying commercial researchers and development payloads into space. The company is developing a spaceflight system that is designed to offer passengers a unique, multi-day, transformative experience.

Investment management firm Ark Invest, which owns some of the world’s largest managed ETFs, plans to venture into the space exploration industry. On January 14, Ark Invest filed a request with the U.S. Securities and Exchange Commission (SEC) to launch  ETF ‘ARKX’. While the ETF’s  holdings are yet to be announced, SPCE is expected to be a major contender for inclusion because it has pioneered space tourism. The stock has gained 32.2% since Ark Invest’s SEC filing, to close Friday’s trading session at $34.28.

While SPCE is not yet profitable, it has many projects in its pipeline. Once SPCE’s commercial business commences, the company is expected to generate impressive returns. This positive outlook and  potential upside based on several factors have helped the stock earn a “Buy” rating in our proprietary rating system.

Here is how our proprietary POWR Ratings system evaluates SPCE:

Trade Grade: B

SPCE is currently trading above its 50-day and 200-day moving averages of $26.51 and $20.37, respectively, indicating an uptrend. Moreover, SPCE has gained 34.6% over the past month, reflecting solid short-term bullishness.

The company’s cash position has remained strong, with a cash and cash-equivalents balance of $742 million as of September 30, 2020. Amid the COVID-19 pandemic, the company has experienced delays in its business and operations, which have negatively impacted  scheduling and cost efficiency. However, SPCE is expected to prepare for commercial launch and reopen ticket sales following Richard Branson’s planned flight this year, and SPCE announced that its  test flight on December 12, 2020 failed to reach  space as planned because  the rocket motor did not fire due to a technical fault. . However, the spacecraft returned to Spaceport America, New Mexico and landed safely.  and r. On October 27, 2020, the company announced the appointment of two new pilots — Jameel Janjua and Patrick Moran — to its pilot corps, bringing the total number of pilots to eight.

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Buy & Hold Grade: C

In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade considers , SPCE is poorly positioned. The stock is currently trading 19.3% below its 52-week high of $42.49, which it hit on February 20, 2020.

Even though the company had a successful debut in October 2019 after completing a merger with the investment firm Social Capital Hedosophia, it has been struggling to generate profits.

Peer Grade: A

SPCE is currently ranked #4of 27 stocks in the Airlines industry. Other popular stocks in the airlines group are Southwest Airlines Company (LUV), Ryanair Holdings plc (RYAAY), and Delta Air Lines, Inc. (DAL).

With 73.8% gains over the past year, SPCE has outperformed its industry peers. RYAAY has returned 13.3% over the same period, while LUV and DAL have lost 11.4% and 32.9%, respectively.

Industry Rank: D

The Airlines industry is ranked #115  of 123 StockNews.com industries. The companies in this industry provide air transportation services worldwide, including the transportation of people and cargo.

The airline industry practically came to a halt amid the COVID-19 pandemic as strict travel restrictions were enforced globally to contain the spread of the virus. Although the roll-out of  vaccines has begun, it is likely to take some time before the industry experiences  pre-pandemic demand for travel.

Overall POWR Rating: B (Buy)

SPCE is rated “Buy” due to its short-term bullishness, fundamental strength, and solid growth prospects, as determined by the four components of our overall POWR Rating.

Bottom Line

SPCE has the potential to soar in the upcoming months despite gaining 73.8% over the past year based on its continued business growth, and favorable outlook. The stock is expected to gain even more in the near term because  it is expected to be a major holding of Cathie Wood’s about-to-be launched ETF, which will be focused on the space exploration industry.

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A consensus revenue estimate of $27.61 million for 2021 represents  a 3186.9% increase year-over-year. SPCE’s EPS is expected to grow 23.3% for the quarter ending March 31, 2020, and 44% in 2021.

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SPCE shares were trading at $35.05 per share on Monday morning, up $0.77 (+2.25%). Year-to-date, SPCE has gained 47.70%, versus a 2.03% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More…

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