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Why Virgin Galactic Stock Is Bouncing Back on Wednesday

By Rich Smith – Updated Dec 16, 2020 at 11:36AM

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A glitch during a test flight ends up demonstrating that a safety feature works.

What happened

Investors in space tourism stock Virgin Galactic (SPCE 1.74%) have had a rough week so far. But the stock can't go down forever, can it?

Apparently, investors today decided that the answer to that question is "No, it can't." And Virgin Galactic stock was up a strong 6.8% at 11 a.m. EST on Wednesday. 

SpaceShipTwo rocketing towards space.

Image source: Virgin Galactic.

So what

Virgin suffered a setback over the weekend, having to cut short a scheduled test flight Saturday after a communications glitch prevented the engine on its VSS Unity from firing. But in a blog entry posted late Monday, Virgin tried to set investors' minds at ease by accentuating the positives.  

Even without a working engine, the blog post said, VSS Unity executed a "perfect landing" and both of its pilots returned to Spaceport America "safe, secure, and in excellent condition."

Virgin is already conducting its post-flight analysis of what happened, and basically concluded that while the craft didn't get to space as planned, it did accidentally test out its "fail-safe scenario" and gave its pilots a chance to rehearse "a scenario where the rocket motor does not ignite after release from the mothership."

Now what

That wasn't what Virgin Galactic had intended to rehearse Saturday, but the experience wasn't valueless. It might even lend future Virgin Galactic travelers added confidence that, if something goes wrong on their flight, Virgin's pilots will know how to deal with it and bring them home safely.

Meanwhile, Virgin Galactic is reviewing its data and preparing to resume its series of three scheduled test flights preparatory to beginning commercial operations later next year. Whatever you think about the stock's valuation (and I still think it's too expensive at more than 10 times current book value and more than 11 times its projected sales five years in the future), I believe the long-term prospects of the company remain unchanged by Saturday's setback.  

Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Virgin Galactic Holdings Inc. The Motley Fool has a disclosure policy.

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