Virgin Galactic Up 10% in March – Time to Buy SPCE Stock?

The price of Virgin Galactic stock has gone up 10% so far this month as the market has regained some composure following the Ukraine-Russia conflicts and concerns about a radical shift in the United States’ monetary policy.

Even though US Treasury yields have continued to climb to their highest levels since the pandemic started at around 2.5%, the uptrend has taken a slight breather in the past couple of days as yields have fallen 18 basis points to 2.32%.

The Federal Reserve’s favorite inflation reading – the PCE Core Price Index – is set to be released this morning and the consensus estimate from economists for the monthly indicator is standing at 0.4%.

Any indication that inflation is accelerating in the country could lead to further declines in risky assets including equities as the markets may interpret that the Fed will have to take a more aggressive stand to contain an escalation in prices within the economy.

Even though Virgin Galactic stock has recovered this month, the price continues to be standing 81.4% below its 52-week high following multiple negative company-specific catalysts including a heavily discounted convertible notes offering.

Just yesterday, Virgin Galactic announced that it appointed a new Director of Flight Test as the company keeps preparing for its first commercial spaceflight, which is scheduled to take place in the fourth quarter of 2022.

Kelly Latimer, a 20-year former US Air Force pilot and an ex-Boeing employee has been with Virgin Galactic since 2015 when she was appointed the first female test pilot.

Her role would be to assist the company in planning, designing, and executing all the testing required for the company’s current vessels to prepare the ships for take-off.

Shares of Virgin Galactic are static on pre-market stock trading action following the announcement after declining 2.9% yesterday.

What could be expected from this space travel stock in the following weeks or months based on these latest developments? In this article, I will be assessing the price action and fundamentals of SPCE stock to outline plausible scenarios for the future.

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Virgin Galactic – Technical Analysis

The price of Virgin Galactic stock has declined as much as 20% since the year started as companyies with relatively weak fundamentals and yet-to-be-proven business models have suffered the most during the market’s latest risk-off move.

The crisis in Ukraine, persistent supply chain bottlenecks, and monetary policy changes in the US have been some of the factors weighing on the performance of equities on a global scale while some company-specific developments such as the disappointing pricing of a convertible note offering by Virgin have also been responsible for the downtrend.

SPCE stock is also standing 47.8% below its 200-day simple moving average although the price action recently broke above a falling wedge formation that had been in play for quite a while.

The chart above shows that there is a former area of support at $12 that could now turn to resistance and that is the first key level to watch moving forward. If the price rejects a climb above this threshold, chances are that the downtrend could resume.

Meanwhile, if a break occurs, it would be plausible to expect a move toward the 200-day SMA in the following month.

For now, momentum indicators appear to have moved to positive territory with the Relative Strength Index (RSI) currently standing at 62 (bullish) while the MACD has moved to positive territory after crossing above the signal line.

Virgin Galactic – Fundamental Analysis

Virgin Galactic has made some interesting announcements lately including the resumption of ticket sales at $450,000 per passenger to be made available in Q3 2022 and the successful completion of a fully-crewed spaceflight of its Unity 22 vessel.

In late February, the company reported its financial results covering the fourth quarter of the 2021 fiscal year. Back then, the company had $931 million in cash, equivalents, and marketable securities. This figure did not include the proceeds from the convertible note offering.

Last year, the company reported negative free cash flows of approximately $235 million and expects to burn up to $85 million during the first quarter of 2022. Additionally, the company’s customer deposits jumped to $90.8 million compared to $83.2 million the firm reported by the end of December 2020

The firm’s cash reserves are more than enough for it to stay afloat in the next 2 to 3 years if its negative free cash flows remain similar to those of 2021. From a fundamental perspective, the current $2.76 billion valuation seems to be assuming that the company will, at some point this year, launch its first commercial flight.

That event is the one that will have the most influence on the valuation of SPCE stock and it is uncertain if the company will manage to stick to its current timetable considering that there have been many delays in the past.

With this in mind, investing in SPCE stock remains a high-risk bet as investors have no assurances yet that the management will have the capacity to execute its plans as expected.

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