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Why Virgin Galactic Stock Bounced Back Wednesday

By Rich Smith - Jun 2, 2021 at 4:24PM

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What would you do with $1 billion? More to the point: What will Sir Richard Branson do?

What happened

Bouncing back from Tuesday's sell-off, shares of Virgin Galactic Holdings (SPCE 2.01%) closed 7.8% higher on Wednesday on no particular news.

So what

And yet, Virgin Galactic had been on an ascending pattern, rising strongly all last week after the company resumed flight test operations with its spaceplanes -- and after company founder Sir Richard Branson made the bold claim that "hundreds of thousands of people" will be flying on his spaceplanes "by the end of this century."

With that overarching story supporting the stock, investors today may have begun rethinking their panic over yesterday's news that Virgin Galactic plans to raise $1 billion in new funds, and started wondering why the company wants so much cash -- and what it plans to do with it.

VSS Unity flying over New Mexico during June 25 glide test flight.

Image source: Virgin Galactic.

Now what

It's well known by this point that Virgin Galactic is not a profitable company -- until it starts booking some passengers on commercial flights, it's not even taking in revenue!

With commercial flight operations -- and ticket sales -- still probably at least six months away, therefore, Virgin Galactic obviously needs to find money elsewhere to finish flying its flight test program and begin building the additional spaceplanes it will need to carry "hundreds of thousands" of passengers.

Presumably, this is what the money is for: Growing the business so that once commercial flight operations do begin Virgin Galactic will have the planes and infrastructure it needs to fully exploit the opportunity. And if this is the case, then the prospect of Virgin taking on debt and issuing new shares to raise the cash may not seem such a frightening prospect after all.

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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