Virgin Galactic Holdings (SPCE -1.15%) expects a regulatory probe into its July launch will be short-lived, and the stock is rallying as a result. Shares of the space tourism company were up as much as 4.7% on Wednesday afternoon on hopes the company will not be grounded for long.
Virgin Galactic has been flying through some turbulence of late. The company's historic July 11 launch that took founder Richard Branson into space is under investigation by the Federal Aviation Administration (FAA), and Virgin Galactic's spacecraft is grounded until the investigation is complete.
That's obviously bad news for the company, and the stock has fallen as a result. But on Wednesday Susquehanna analyst Charles Minervino wrote that Virgin Galactic hopes the FAA investigation will be resolved quickly, saying the company sees a path toward flying its first commercial mission within a month.
The company acknowledges that the Branson flight dipped below its targeted airspace for about one minute and 41 seconds due to high altitude winds but says that all protocols were correctly adhered to, and there was never any danger. Assuming the FAA agrees, the investigation is likely to be a formality and should be quickly resolved.
If Minervino is correct, it is certainly good news for Virgin Galactic. It's hard to be a space company if your spaceships are grounded. That said, investors need to remain cautious.
The risk was never that the grounding would be permanent; it was the potential reputational damage of an investigation. Virgin Galactic's business plan is predicated on consumers paying six figures to briefly experience weightlessness, and closing that sale requires a pristine reputation for safety.
Shares of Virgin Galactic are down nearly 50% in the months since the Branson flight as investors try to balance the exciting potential of space tourism with the difficult realities of the business. Until Virgin Galactic is regularly flying paying customers into orbit, caution is warranted.