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Why Shares of Virgin Galactic Are Falling Today

By Lou Whiteman - Dec 14, 2020 at 10:24AM

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A weekend test flight failed to go to plan.

What happened

Shares of Virgin Galactic Holdings ( SPCE 1.48% ) fell 15% at the open on Monday following a weekend test flight that didn't go as planned. Space is hard, and investors got a fresh reminder of how many things can go wrong in an attempt to break free from Earth's pull during the latest test.

So what

It's been a frustrating year for Virgin Galactic. The space tourism company had originally hoped to begin commercial service in 2020, but a series of pandemic-related delays has pushed back the test schedule.

The company finally was able to conduct a test from its Spaceport America in New Mexico over the weekend, but things did not go as planned. Virgin Galactic in a statement said that the Unity spaceship's onboard computer that monitors the rocket motor lost connection shortly after the spacecraft was released from its mother ship.

Virgin Galactic's space ship with the mother ship.

Image source: Virgin Galactic.

"As designed, this triggered a fail-safe scenario that intentionally halted ignition of the rocket motor," CEO Michael Colglazier said in a statement. "Following this occurrence, our pilots flew back to Spaceport America and landed gracefully as usual."

The flight was one of three remaining test flights Virgin Galactic had planned before beginning service, and it is unclear whether it will further delay revenue-producing flights. Company founder Richard Branson, who was originally scheduled to fly into space this year, hopes to reach orbit on a Virgin Galactic spaceship in the first quarter of 2021.

Now what

This is certainly a setback, but not a disaster for Virgin Galactic. The incident as reported by the company appears to be more of a precautionary abort than a serious problem, and did allow Virgin Galactic to demonstrate its ability to return to Earth safely in the event of a mishap.

Colglazier in his statement emphasized that aspect of the incident, saying the Virgin Galactic spaceflight system is designed to safely glide back to the Spaceport in the event of an incident.

"Seeing firsthand how our pilots brought Unity in for a picture-perfect landing after an off-nominal condition confirmed this approach," Colglazier said. "I am even more confident that this is the level of safety that consumers will want and will be expecting from us."

Virgin Galactic has zero revenue coming in right now, so if the company is to become the growth stock investors hope it will be it needs to get tourists into orbit eventually. But this incident appears likely to at worst delay flights, and shouldn't derail the company's ambitions.

Space is full of risk, which is why Virgin Galactic shares should be nothing more than a small part of a well-diversified portfolio. But investors shouldn't get too down over the result of one test flight.

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.

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