What happened

For the second day running, space tourism stock Virgin Galactic (NYSE:SPCE) dropped in morning trading, falling 3.6% through 11 a.m. EST on Thursday. When you consider that Virgin is probably just hours away from conducting its next test flight, that seems counterintuitive. But there are a couple of reasons investors may be getting nervous.

So what

First, the coronavirus has been a consistent theme these past few weeks. Investors are tracking the incidence of new infections in New Mexico in anticipation that consistently rising numbers may affect Virgin Galactic's test-flight schedule. New cases of coronavirus in the state declined on Tuesday, but then rose again on Wednesday, surpassing Monday's number.  

I think that's neither good nor bad for Virgin Galactic. It would be truly bad news if cases continued to rise in a trend that might frighten state authorities into tightening restrictions on business activity, even more than they've already been tightened. Numbers that just seesaw back and forth, however, indicate no such trend and no such heightened risk.

SpaceX Starship SN8 in flight Wednesday, Dec. 9, 2020.

The SpaceX SN8 Starship in a test flight on Wednesday. Image source: SpaceX.

Now what

But there's a bigger worry for Virgin Galactic shareholders: SpaceX.

Yesterday, in the explosion heard round the world, SpaceX conducted the 41,000-foot-high altitude test flight of its SN8 Starship prototype. The test vehicle flew unmanned straight up, then descended back to earth propelled by nothing but gravity, before crashing in a fiery explosion.  

That sounds bad, but it was actually very close to a perfect test flight up until the final 10 seconds or so. A degree or two more tilt, and a few meters-per-second slower, and SN8 would have landed unharmed.

That's great news for SpaceX, which has already expressed interest in using the Starship for, among other things, space tourism. It's not such great news for Virgin Galactic, which is now seeing SpaceX gaining fast, potentially offering a competing space tourism service in a much larger spacecraft, with better unit economics, and ticket prices potentially so low that Virgin will be unable to match them.

Is this a good reason to sell Virgin Galactic stock today? I think it might be.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.