Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of Virgin Galactic Are Soaring Today

By Lou Whiteman - May 6, 2020 at 3:33PM

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

Earnings missed expectations, but the pandemic is not damaging the company's reservation list.

What happened

Shares of Virgin Galactic (SPCE -1.48%) were up more than 12% on Wednesday following the company's first-quarter earnings report. The results fell short of expectations, but investors for now are focused on the potential of the business, and not its current results, and there was little in the report to make shareholders question the potential.

So what

Virgin Galactic reported a first-quarter loss of $0.30 per share on revenue of $238,000, well short of analyst expectations for a $0.15 per share loss on revenue of $320,000. But given the company's market capitalization is about 11,000 times higher than those expected sales numbers, it's pretty clear that Virgin Galactic shares don't trade on current results.

Instead, investors were eager to see if the COVID-19 pandemic, and the subsequent fall in equity values, had an impact on demand for space tourism.

Virgin Galactic Eve and Unity.

Image source: Virgin Galactic.

The company said demand for its service remains strong, booking more than 400 customer deposits via its "One Small Step" sales initiative. That represents about $100 million in potential future business. The bookings came from customers in 44 countries and will be added to Virgin Galactic's existing list of more than 600 reservations.

"We believe this response to our One Small Step initiative demonstrates the appetite for our product offering among new potential future astronauts," CEO George Whitesides said in a statement. "The COVID-19 outbreak led to an unprecedented situation for companies and individuals across the world, but I am encouraged by the commitment displayed by our team in helping to support relief efforts while making program progress. We remain focused on our strategic goals and our path to commercial launch."

The company also said it had entered into an agreement with NASA to help develop long-distance high-speed travel.

Now what

How do you value a business like Virgin Galactic? It's more art than science for now, which might explain why the shares have soared to a high of $42.49 and hit a low of $6.90 since hitting public markets last October.

The company has said it hopes to begin commercial operations this year, with a goal of being profitable next year. That sounds great but given the bleeding-edge nature of its products and the high fixed costs of the business, it's advisable for investors not to get too locked in on those projections. It's also unclear what the overall demand for space tourism is, especially at $250,000 per ticket.

I personally remain skeptical whether this will ever be a sustainable business, and not just a billionaire's vanity project. But as Virgin Galactic attempts to add new technologies like hypersonic travel to its arsenal, as well as its business launching suborbital unmanned missions, its chance of success does grow slightly higher. If nothing else I'd advise keeping Virgin Galactic as a small, speculative piece of a larger portfolio, and not a core part of your retirement plan.

Lou Whiteman 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.

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.
$6.64 (-1.48%) $0.10

*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 analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/19/2022.

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.