Virgin Galactic stock surged after the company inked a deal with NASA. But this news does not justify SPCE's parabolic rally.
Virgin Galactic stock (Nasdaq: SPCE) has been a popular play with day traders this year. In February, shares went to the moon, more than tripling from $11 to an intra-day peak of $42.
Since the market sell-off that dragged down shares, the company has only partially rebounded. That’s looking to change today, with the news that Virgin Galactic has inked a deal with NASA.
Under the deal, the company will develop a private orbital astronaut readiness program. That’s a bit beyond Virgin Galactic’s core business of suborbital space tourism.
Instead of catering to the wealthy, they’ll be working to provide training to scientists and researchers headed to the International Space Station (ISS).
From a business standpoint, it’s easy to see why the stock rallied more than 15% today on the news. A partnership with NASA provides some credibility for the company and its prospects.
And, yes, crew training can be a potentially high-margin business. But when the customer is Uncle Sam, the procurement process typically makes massive profit margins unlikely.
There’s also the question of timing. The company just isn’t ready for this kind of prime-time announcement yet.
Currently, Virgin Galactic has a rocket-powered spaceplane, the VSS Unity.
It climbs to about 55 miles, high enough to create a weightless feel for passengers, before heading back to earth. So far, it’s had a total of two test flights pierce the “official” boundary of space, with a whopping five passengers.
The company currently has 603 reservations for private passengers.
Tickets have sold at around $200,000 to $250,000 per person. That’s about ~$150 million in potential revenue—ever—for a company with a market cap of $3.6 billion.
And they’ve already got $80 million of that total in deposits.
Clearly, the NASA agreement, like the launches themselves, will take years to play out. The only good news is that it increases the company’s potential customer base, thanks to NASA picking up the tab.
Looking at the competition, its NASA deal is hardly a game-changer. Besides Virgin Galactic, Blue Origin is also working on a space tourism package.
Meanwhile, SpaceX’s Crew Dragon just sent two passengers to the ISS last month. That’s the first manned launch from American soil since the space shuttle was retired.
So while SPCE shares soared today on the news, it likely won’t prove sustainable.
There’s a lot of interest in “space stocks.” But with retail investors pushing shares higher again this year, it’s important to note that this company’s financials are just awful.
For example, the company has seen revenue drop 87% in the past year. There’s a negative return on equity of 99%. Its operating margin is an astounding negative 10,300%!
The only plus? The share price is up just under 50% in 2020.
At this point, today’s news looks like nothing more than a chance for day traders to grab a quick profit and find better opportunities elsewhere.