The share price of Virgin Galactic (NYSE: SPCE) has moved like a rollercoaster over the last 12 months. While overall, it’s up by nearly 270%, the US stock has been incredibly volatile. In February this year, it moved as high as $59 per share, only to fall to as low as $15.50 by May. But since reaching this low point, it’s now back on the rise and currently sitting around $56. What’s causing all this volatility? And should I be considering Virgin Galactic for my growth portfolio?
The business potential
Virgin Galactic is a commercial space flight business. The goal is to create a brand-new market for space tourism. Individuals can spend $250,000 on a ticket to see our blue planet from above and experience zero gravity. But beyond this target, the company is also venturing into launching new Mach 3 aircraft to make international air travel far more efficient. Currently, a flight between Los Angeles and Tokyo takes around 12 hours. But with Virgin Galactic, that could be reduced to a third of that.
I can see why investors are excited by the prospect, especially since one of the firm’s chief competitors, Blue Origin, just sold its first ticket at auction for $28m! This is particularly important, since to date, Virgin Galactic has received around 8,000 flight reservations. Meanwhile, Blue Origin saw more than 7,600 participants in its ticket auction, the vast majority of whom were willing to pay up to $5m on a single ticket.
To me, that signals two things. Firstly, the space tourism market, while niche, may be much larger than initially anticipated. And secondly, Virgin Galactic’s seemingly expensive tickets might actually be incredibly cheap, relatively speaking. Is this the easyJet of the space travel industry? Regardless, it looks like finding customers won’t be a problem. And with an estimated $1bn of revenue expected to be generated per year from a single spaceport, the business looks like it could be about to take off.
The volatile Virgin Galactic share price
There are doubtless many contributing market forces responsible for the large swings in Virgin Galactic’s share price. However, whether I look at options traders, retail investors or short-sellers, there are two prominent themes – uncertainty and excitement.
In February 2021, the company announced its first commercial space flight would be delayed until 2022. This led to the stock plummeting. But then, following the successful flight test in May, it shot straight back up. And just last week, Virgin Galactic received regulatory approval from the FAA to take customers to space, launching the share price up by another 39% in one day. This level of volatility is hardly surprising, given that the stock seems to be entirely driven by speculation. After all, the firm has no existing revenues beyond advanced bookings that can potentially be refunded.
Needless to say, that exposes investors to a lot of risk. Suppose another delay occurs, or a catastrophic failure happens during product testing, or even worse, during a future commercial flight. These could have a considerable adverse impact on investor and consumer confidence, and consequently, the stock price.
The bottom line
In my opinion, Virgin Galactic has the potential to be a highly lucrative investment. But whether that will happen has yet to be seen. Given the level of uncertainty, this looks more like gambling than investing in my eyes, so I’m personally not interested. At least, not for now.
Once commercial flights begin and a clearer picture of the viability of this business begins to form, I may change my mind.
Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Virgin Galactic Holdings Inc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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