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Why Virgin Galactic Stock Jumped 7% This Morning, Then Dropped

By Rich Smith - Jan 19, 2021 at 11:51AM

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Someone just sold a big chunk of shares.

What happened

On Sunday, Virgin Orbit put a rocket into orbit for its first time ever. The satellite launch company is not part of space tourism company Virgin Galactic (SPCE -0.46%). Still, presumably buoyed by the good news out of its sister company, Virgin Galactic stock took off this morning, rising more than 7%.

But about 15 minutes into the trading day, the stock began falling, and was bouncing around a 2% gain as of 10:45 a.m. EST on Tuesday.

Red stock arrow breaking up and showering down in pieces over a city below

Image source: Getty Images.

So what

I think you can probably blame a couple of factors for the quick reversal in sentiment over Virgin Galactic. First, analysts at Susquehanna International cut Virgin Galactic's rating from positive to neutral this morning.    

Susquehanna set a $32 price target on Virgin Galactic, however, indicating at least modest upside from Friday's closing price, which isn't really bad news.

But the second news item today might prove more worrisome to investors. As Barron's reports, the Abu Dhabi sovereign wealth fund Mubadala Investment, which had been (and remains) one of Virgin Galactic's largest shareholders, has cut its ownership stake in the stock from more than 7% to just a bit over 5% of shares outstanding.  

Now what

Barron's notes that the Abu Dhabi fund is still Virgin Galactic's third largest shareholder, so even this reduction in interest doesn't necessarily foreshadow anything terrible for the stock. Mubadala may simply be prudently cashing in profits from the space company's amazing 28% run in the first couple of weeks this year.

Much more important to the company's future, and to its ability to reward investors, is how quickly Virgin Galactic can figure out how to fix the issue that caused the company's VSS Unity spaceplane to fail to reach space last month.

Once that problem is resolved, I suspect Virgin Galactic's stock price will fix itself.

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