Virgin Galactic Stock Down 15% in February – Time to Buy SPCE Stock?

The price of Virgin Galactic stock has declined 15% this month ahead of the release of the firm’s earnings report covering the fourth quarter and entire 2021 fiscal year as a deterioration in the market’s sentiment amid war drums and higher Treasury yields weighed on the valuation of this space stock.

Just yesterday, Virgin Galactic published its Q4 2021 earnings report. Revenues for the three months ended on 31 December ended at $141 million. Meanwhile, net losses ended at $80.8 million resulting in losses per share of $0.31. This loss was 4 cents lower than Wall Street’s consensus estimate for the period.

The company announced that it started selling new tickets at $450,000 per seat for private astronauts who should be able to make a trip in Q3 2022. The company reported customer deposits of $90.9 million by the end of this period.

During these three months, Virgin’s negative free cash flows ended at $67.2 million while its total cash and marketable securities stood at $931 million not including the latest $425 million convertible notes issued in January this year.

The company affirmed that it expects to launch its first commercial flight in Q4 2022. On 15 February, Virgin commenced ticket sales to the general public at $450,000. An initial deposit of $150,000 must be made to secure a seat while the remaining portion of the ticket price will have to be paid days before the trip takes place.

Market participants are reacting positively to this latest quarterly report as shares are rising 4% in pre-market stock trading action this morning.

What could be expected from the company founded by Richard Branson following the release of this earnings report? In this article, I’ll be assessing the price action and fundamentals of Virgin Galactic stock to outline plausible scenarios for the future.

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Virgin Galactic Stock – Technical Analysis

The price of Virgin Galactic stock has been declining sharply this year. Thus far, the stock has shed 41.6% of its value since the year started while it is trading 86.4% below its 52-week high.

On 15 February when the company announced that it started selling tickets to the general public, the stock went up 32% during a trading session that saw 182 million shares exchanging hands – more than 8 times the 10-day average.

This reflected the market’s positive reaction to that decision even though the most important catalyst for the business remains the official launch of its commercial trips to space.

Despite this strong single-day uptick, the price has once again tagged the $8 horizontal support area. This remains the most important threshold in the near term as a break below could accelerate the downtrend.

Yesterday’s earnings report was not either good or bad. It remains to be seen if positive actions from analysts will take place in the next few weeks following the company’s decisions to sell tickets to everyone.

For now, the outlook for SPCE stock remains neutral-to-bearish. If the $8 level holds, chances are that the stock could bounce slightly. However, if macro conditions and market sentiment continue to deteriorate, Virgin Galactic may continue to decline as the company’s fundamentals remain weak.

Virgin Galactic Stock – Fundamental Analysis

The fact that Virgin Galactic was able to open sales of its tickets to the general public is one important milestone for the business as it immediately expands its total addressable market (TAM).

However, the price point remains rather high and demand may continue to be limited to uber-wealthy individuals until operations scale up significantly.

It remains to be seen if Virgin Galactic will be able to live up to its promised deadline for initiating commercial flights.

If one projects the company’s cash burn to around $400 million for this year based on historical trends, Virgin has enough money to sustain itself for the next three years at least.

Even though solvency risks are rather low at the moment, the company will still need to raise significant capital to expand its operations once commercial flights start. Therefore, dilution risks continue to be high.

It is unlikely that Virgin will manage to raise capital through debt which means that it will have to either sell shares directly or via convertible notes in the future to finance its future investments.

At a $2 billion valuation, Virgin Galactic remains a gamble as the faith of the company depends largely on its ability to start operating commercial flights successfully.

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