Virgin Galactic Stock Down 12% Today – Time to Buy SPCE Stock?
The price of Virgin Galactic stock is down 9% this morning in pre-market stock trading action after the company announced that it plans to issue convertible senior notes to raise a total of $500 million in capital.
In a press release published today, the company outlined the initial terms of the offering. The aggregate principal of the notes will be $425 million due in 2027 and carrying an interest rate that is yet to be determined.
The company stated that this is “a private offering to persons reasonably believed to be qualified institutional buyers”.
In addition, the company will sell $75 million in options to acquire more notes within a period of 13 days that includes the date on which the notes are issued.
Alongside this notice, the company refreshed its guidance regarding its financial results for the fourth quarter of the 2021 calendar year.
According to Virgin, cash and equivalents will end the period at around $933 million while negative free cash flows should end between $65 and $70 million. The company affirmed that it continues to expect to operate its first private commercial spaceflights by the end of the fourth quarter of 2022.
Market participants appear to be reacting negatively to the news, possibly amid the potentially dilutive nature of this convertible issue.
What could be expected from Virgin Galactic stock following today’s developments? In this article, I’ll be assessing the price action and fundamentals of this space stock to outline plausible scenarios for the future.
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Virgin Galactic Stock – Technical Analysis
Back in October when I last wrote about Virgin Galactic, I stated that the stock could collapse to the $14 level if the bullish price gaps that were left behind in May last year were filled.
The outcome was actually worst as the stock has declined below that target and seems poised to drop to the low 10s – a level that is close to the price of the SPAC that merged with Virgin to take the company public.
If this pre-market drop materializes during the live session, the price would now be standing 56% below SPCE’s 200-day simple moving average. This emphasizes the significant weakness that the stock has been experiencing amid some setbacks in the company’s journey to launch its first private flights.
Momentum indicators are favoring the continuation of the downtrend as the MACD is neck-deep into negative territory and has flat-lined while the Relative Strength Index (RSI) has remained below the 50 threshold (bearish) for quite a while.
Overall, the outlook remains bearish with the $9.5 level being the next support area to watch for a total downside risk of 23%.
Virgin Galactic Stock – Fundamental Analysis
The multiple delays in the launch of the company’s first commercial flights are making some investors nervous as that prolongs the company’s cash burn and forces the management to raise capital periodically at lower and lower valuations.
During the first nine months of the 2021 fiscal year, Virgin burned nearly $180 million while the forecasted figures provided today point to an annual cash burn of $250 million at least.
If the company’s cash and equivalents stood at $933 million by the end of December last year, this means that Virgin has liquidity for multiple years even without including the proceeds from these latest convertible notes.
That said, the company may be expecting to ramp up its capital expenditures in the next few quarters as it keeps moving forward in the development of more vessels including the VSS Imagine, which is expected to perform its first flight tests during the third quarter of 2022.
The company has many ambitious goals in terms of what this Imagine vessel and its Delta Class spaceships can do to make space travel more affordable by increasing passenger volumes.
However, the moment of truth will come when the company flies its first private mission carrying regular passengers as this could once again attract believers.
For now, market sentiment toward the stock is quite negative and even though the company’s financials are sound, it is unclear if shareholders will have to endure further dilution of their holdings if the company is forced to once again delay its private flights by any reason this year.
At $3 billion, the company is being valued at 2 times the firm’s expected revenues for 2023 – the year in which is expected to operate commercial flights all year long.
Whether this is an attractive valuation or not depends on the firm’s ability to live up to its promises. If it delays its commercial trips once again this year, the valuation could collapse to even lower levels as the feasibility of the business will remain in question.