What happened
Virgin Galactic (SPCE 2.81%) stock had a pretty great day on Monday, shooting up 16% by the closing bell. Credit for that goes to Morgan Stanley, which yesterday initiated coverage of the space tourism stock with an overweight rating and a $22 price target.
Today, Virgin Galactic shares are up again -- rising 12.2% by 10:20 a.m. And I suspect credit for this spike in share price goes to the media, which reported on Morgan Stanley's rating.
Image source: Getty Images.
So what
Just a glance at news reports on the stock "initiation" will tell you why: Morgan Stanley urged investors to "buy the stock," said Barron's. Virgin Galactic "stock can jump 203%," reported Business Insider. Virgin Galactic "shares to triple," predicted CNBC. And who wouldn't want to buy a stock that's set to triple?
I mean, if Virgin Galactic stock is set to go up "203%" but gained "only" 16% yesterday, that means there's still another 187% to go, right?
Now what
Well, not so fast.
Yes, Morgan Stanley said that it thinks Virgin Galactic shares could triple en route to its target price of $22. But Morgan Stanley also called the company a "biotech-type" stock -- the kind that can produce amazing returns...or go to zero if disaster strikes in the form of a spaceship crash.
Moreover, it's crucial to understand that Morgan Stanley built its buy thesis on the theory that even if all goes well with its space tourism business, Virgin Galactic will eventually evolve into a provider of an entirely different service -- point-to-point hypersonic commercial air travel. That's a technology that could take a decade or more to develop, however, so even if Morgan Stanley is ultimately proven right about the company's long-term future, investors might have to wait a very long time to find that out.
In the meantime, expect Virgin Galactic shares to wobble wildly, because the future is uncertain, and -- so long as there's the risk of a potential spaceship crash -- Virgin Galactic's end is always near.
