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Why Shares of Virgin Galactic Dived 40% in March

By Scott Levine - Updated Apr 8, 2020 at 3:26PM

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This stock returned to terra firma after soaring in January and February.

What happened

After soaring 113% through the first two months of the year, shares of Virgin Galactic Holdings (SPCE 0.00%) came back to earth in March as they plunged 40%, according to data from S&P Global Market Intelligence. While the general fear in the marketplace that helped to drive the S&P 500 down 12.5% motivated some investors to exit their positions in this high-risk stock, others were moved to act based on the fact that the company remained committed to compensating executives handsomely, eschewing any cost-cutting measures.

So what

Oftentimes when the market exhibits significant volatility, many investors will retreat from speculative growth stocks like Virgin Galactic. March was no different. The company, which reported revenue of $3.8 million in 2019 and a net loss of $211 million, has yet to prove that providing space-flight tours to individuals with a high net worth can be a lucrative endeavor.

Head in hands, a businessman sits in front of a financial chart.

Image source: Getty Images.

Recognizing the challenges that face the company, investors surmised that the market sell-off surely left wealthy individuals (who represent Virgin Galactic's key market opportunity) less likely to indulge on a luxury experience. In the company's 2019 10-K, for example, Virgin Galactic reported that it had received 600 reservations, representing a backlog of about $120 million in future payments. With the overwhelming uncertainty surrounding the economy's recovery, investors concluded that high-net-worth individuals would be tightening the purse strings for the foreseeable future.

Another catalyst last month came in the form of the company's Securities and Exchange Commission filing that indicated the company's board of directors had approved nearly $24 million in compensation for four executive officers. Although Virgin Galactic stated that the board "decided to approve bonus amounts equal to 50% of the 2019 earned bonuses in light of recent COVID-19 (coronavirus) considerations," investors were unsatisfied that the reduction was enough, since other executives had taken more significant actions. On March 16, for example, the CEO of Delta Air Lines announced that he was taking a 100% reduction to this salary for six months, while Lawrence Culp, CEO of General Electric, said that he plans to forgo his full salary through the rest of 2020.

Now what

Although Virgin Galactic's stock encountered some turbulence in March, investors with a long-term horizon shouldn't be too dismayed. In fact, the stock's dip may present those with an eye on this growth stock with a good entry point, or for those who already have a position, now may be an opportune time to add to it.

Scott Levine has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Delta Air Lines. The Motley Fool owns shares of Virgin Galactic Holdings Inc. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Virgin Galactic Holdings, Inc. Stock Quote
Virgin Galactic Holdings, Inc.
SPCE
$7.12 (0.00%) $0.00
Delta Air Lines, Inc. Stock Quote
Delta Air Lines, Inc.
DAL
$35.43 (2.70%) $0.93
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
^GSPC
$4,287.57 (0.17%) $7.42
General Electric Company Stock Quote
General Electric Company
GE
$79.70 (-0.29%) $0.23

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

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