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Why Virgin Galactic Stock Popped 12% Wednesday -- Then Gave Half of It Back

By Rich Smith – Updated Feb 13, 2020 at 10:29AM

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Even Virgin Galactic fans are starting to get nervous.

What happened

Shares of space company Virgin Galactic (SPCE 0.20%) are shooting higher once again. In midday Wednesday trading, shares of the space tourism stock tacked on nearly 12% -- then gave back more than half their gains to close the day up only 5.2%.

So what

Wait. Did I say "only" 5.2%? By close of trading Wednesday, each share of Virgin Galactic was fetching more than $23 a share. And that's actually problematic, because if you recall, this whole Virgin Galactic stock rally all began with a stock report from Morgan Stanley back in early December. Back then, the investment bank hypothesized that if Virgin Galactic should succeed in building a space tourism business -- getting customers to sign up, proving its spaceplane can fly to space and return safely, and earning a profit from doing so -- then Virgin Galactic might be worth $10 a share.

Should Virgin Galactic then go further -- accomplish all of the above, and then also create a fleet of hypersonic passenger jets to move travelers around the globe at Mach speeds -- well, in that case, Virgin Galactic stock might be worth as much as $12 more: $22 a share.

Second Virgin Galactic SpaceShipTwo under construction

Image source: Virgin Galactic.

Now what

Currently, of course, Virgin Galactic has done none of the above. Hasn't flown a single paying passenger aboard its spaceplanes. Hasn't worked out the technical details of how to fly passengers hypersonically. Hasn't completed construction of more than a couple of SpaceShipTwo spaceplanes for its fleet.  

Yet today, the stock is priced above what Morgan Stanley said it would be worth if it had done all these things.

No wonder investors got a bit nervous today. No wonder Virgin Galactic gave back half its gains.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of Virgin Galactic Holdings Inc. The Motley Fool has a disclosure policy.

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