Please ensure Javascript is enabled for purposes of website accessibility

Why Virgin Galactic Stock Is Higher Today

By Lou Whiteman – Sep 8, 2021 at 2:23PM

Key Points

  • Virgin Galactic is currently grounded while the FAA conducts an investigation into a recent flight, but one Wall Street analyst is out with a note saying the grounding is likely to be short-lived.
  • Even after Virgin Galactic resumes operations, investors need to be concerned about reputational risk.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The company could soon be airborne again.

What happened

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.

So what

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.

Virgin Galactic's Unity spaceship rockets higher.

Image source: Virgin Galactic.

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.

Now what

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.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

Virgin Galactic Stock Quote
Virgin Galactic
SPCE
$5.14 (-1.15%) $0.06

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.