Virgin Galactic (SPCE -4.90%) is one of those companies that is high risk and high reward potential for investors. The company is literally trying to invent space flight as a business model, and could flame out before it generates any meaningful revenue.
But if the company succeeds, it could be the only company offering space tourism and mach speed travel. A decade from now, we'll know whether the bull or the bear thesis wins out.
Don't underestimate the risk
When thinking about where a company like Virgin Galactic will be in 10 years, you can't deny that there's risk the company goes under. The company is still effectively pre-revenue and burning hundreds of millions of dollars developing spacecraft. Any flaw with its test flight on Oct. 22, or even once commercial operations launch, could endanger the company.
There's also market risk that the company has overestimated its potential market. Management thinks it can sell tickets for a short space flight at about $250,000 apiece and with over 700 deposits, there's evidence customers are willing to sign up. But those deposits aren't a final contract and when operations ramp up, it will need as many as 1,565 passengers annually by 2023 if projections are correct.
This is a high-risk investment, and when looking 10 years out, that shouldn't be discounted.
Space flight as tourism
The first step for Virgin Galactic is to prove it can build spacecraft and attract customers that will pay for a short trip to space. Management expects to begin commercial flights next year and there are currently over 700 deposits, so there's at least some interest for tickets that can cost as much as $250,000 apiece.
If Virgin Galactic can successfully launch commercial space flight and scale it as new spacecraft are completed, it could fund the business that will ultimately change travel forever.
Space flight as productivity
Space is the start for Virgin Galactic, but it's a Mach 3 aircraft that could be its future. The company is developing an aircraft that will transport as many as 19 people at up to Mach 3 and is proposing using the aircraft around the world.
Mach speed travel has been tried before, and the Concorde wasn't successful in making it popular. But the smaller size of Virgin Galactic's aircraft makes the flight more like a private jet flight than a commercial airliner. And that may make a six-figure ticket worth the price for well-heeled travelers.
Where is Virgin Galactic going to be in 10 years?
Based on its market and the risk of its operations, Virgin Galactic has all the makings of a boom or bust stock. There's a possibility the company goes to $0 if there's a crash or delays or costs run so far ahead of demand that it runs out of cash. And that risk can't be overlooked.
But I also see the potential for the company to disrupt travel as we know it. It's not space tourism that investors should be excited about, it's luxury high-speed travel around the globe that could end up being a multi-billion dollar market long term.
Given that there's no revenue today, it's hard to guess how much revenue or profit Virgin Galactic could generate 10 years from now, but I do think it has the potential to be a high growth stock and a long-term winner for investors willing to hang on for the ride.