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Why Virgin Galactic Stock Was Falling This Morning

By Lou Whiteman - Updated Feb 12, 2021 at 12:25PM

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A much-anticipated Saturday test flight is being delayed.

What happened

Shares of Virgin Galactic Holdings (SPCE -4.78%) were down more than 10% in pre-market trading on Friday morning after the space tourism company delayed a planned weekend test flight. It's unclear how long a delay we are looking at, but given the way the stock has shot higher in anticipation of this test, it's no surprise that the delay was met with a sell-off.

So what

Virgin Galactic had originally hoped to begin commercial service in 2020, but the company has been hit with pandemic-related delays, and in December a highly anticipated test flight didn't go to plan.

The company had hoped to retry that test on Saturday, but on Friday morning announced that after conducting pre-flight preparations, "we have decided to allow more time for technical checks."

Virgin Galactic's Unity spacecraft hitching a ride with its mother ship.

Virgin Galactic's Unity spacecraft attached to its mother ship. Image source: Virgin Galactic.

The company provided no other details, so it is tough to say whether it simply wanted more time to make sure everything was right or if it has discovered some issue that could take time to resolve. But investors on Friday morning were not waiting around to find out.

The company's shares are up more than 120% already in 2021, and given that Virgin Galactic generates little to no revenue right now, there is a lot riding on these tests.

Now what

Virgin Galactic was vague about when it might be able to conduct the test, but it has previously said there were opportunities throughout February. If so, it is quite possible we'll still get a test in the weeks to come and (assuming it goes well) the company will remain on schedule to begin commercial service this year.

If nothing else, the announcement is a reminder of what a volatile stock this is. Virgin Galactic is valued by the market at $14 billion despite generating no revenue right now, based purely on the potential should everything go right.

When it comes to space, things very rarely go right the first time. For those who want to buy into the potential and hope for the best, I'd advise limiting Virgin Galactic to a small piece of a well-diversified portfolio. And don't expect a smooth ride even if the stock does rocket higher from here.

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