Please ensure Javascript is enabled for purposes of website accessibility

Why Virgin Galactic Stock Crashed Another 10% Today

By Rich Smith - Jan 24, 2020 at 5:54PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Speculative stocks are volatile stocks. That's just the nature of the beast.

What happened

What went up is coming back down again.

For the past month and a half, investors in space stock Virgin Galactic Holdings (SPCE 3.55%) have been treated to a wild ride. Since Morgan Stanley issued its controversial report in December, predicting that Virgin Galactic shares would triple in value over the course of a year, the stock made a valiant effort at doing just that -- rising from $7.26 a share to $19.72 as of Wednesday's close.

But then reality set in. Virgin Galactic stock slid 3% in Thursday trading, and then the slide accelerated -- closing out Friday trading down another 10%.

Cartoon characters confused by a falling stock chart

Image source: Getty Images.

So what

Virgin Galactic is a great story stock. Arguably the first pure-play space company to become available for purchase on the stock market (at least unless you count space satellite operators such as Intelsat and Iridium), and with a stock-market history less than a year long, Virgin Galactic has little bad news in its past, and potentially lots of good news in its future.

But what about its present?

Presently, there's really not a lot to recommend Virgin Galactic, at least not in the form of numbers you can hang a valuation on. Virgin Galactic has no profit at all, for example -- just losses. Worse, total revenue generated over the past year for this $3.4 billion company total just $4.5 billion. Its price-to-sales ratio is 742.

Now what

Even if you believe that the "space economy" is going to be a thing in the future, it's hard to say at this point whether Virgin Galactic will be part of that future.

For that matter, even if it will be, it's hard to say whether $3.4 billion is a reasonable market value...or too much...or too little. Until Virgin Galactic begins operations, and we get better insight into how profitable it will be (if at all), buying Virgin Galactic stock will feel a lot more like speculating than investing.

And that's a recipe for continued volatility in the stock price, to the upside -- and also to the down.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Virgin Galactic Holdings, Inc. Stock Quote
Virgin Galactic Holdings, Inc.
SPCE
$6.70 (3.55%) $0.23

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
332%
 
S&P 500 Returns
118%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.