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Why Virgin Galactic Stock Is Rocketing Higher Today

By Lou Whiteman - May 20, 2021 at 9:06AM

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Flight testing could resume within a couple of days, weather permitting.

What happened

Shares of Virgin Galactic Holdings (SPCE -1.48%) jumped by nearly 20% at the open on Thursday after the space tourism company said it would resume test flights as soon as Saturday. As of 10 a.m. EDT, the stock was still up by around 13%.

So what

Virgin Galactic has experienced a lot of turbulence over the past year. The company had originally hoped to begin commercial operations last year, but those plans were foiled by a combination of pandemic-related complications and testing issues.

Its shares plunged last week after management warned it was evaluating a new issue that it said could further delay testing. This latest problem involved the VMS Eve, the composite plane that was designed to carry the spaceship Unity to an altitude of about 50,000 feet and launch it from there into space. Virgin Galactic said at the time that it had discovered fatigue and stress issues with the plane, and needed time to assess the damage.

Interior shot of the Virgin Galactic spaceship.

Image source: Virgin Galactic.

On Thursday, Virgin Galactic said the Eve has been cleared for flight, and that flight tests would resume as soon as Saturday, weather permitting.

"Following a detailed inspection and thorough analysis of our mothership, Eve, we have cleared our Spaceflight System for our upcoming flight," CEO Michael Colglazier said in a statement.

Given that Virgin Galactic generated no revenue in the first quarter, the company's ability to advance through its testing program and reach the point where it is able to start flying paying customers is essential to it turning into the growth stock that investors hope it will become.

Now what

Resuming the test flights is an important step in the right direction, but make no mistake about it: Virgin Galactic still has a lot to prove this year. The stock has lost about half of its value from its late February highs, and the only way it can start heading back toward those levels is if these tests go well.

Virgin Galactic's potential is exciting, but the technical hurdles it must overcome are immense, and competition is coming. Those who want to buy in will need to carefully monitor how things go in the weeks and months to come. And for those who do invest, Virgin Galactic stock should only make up a small part of a well-diversified portfolio.

Lou Whiteman 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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