What happened
Shares of Virgin Orbit (NASDAQ: VORB) rocketed 3.9% higher in afternoon trading on the Nasdaq on Thursday, 2:30 p.m. ET. Virgin Orbit, Sir Richard Branson's latest space special-purpose acquisition company (SPAC), launches satellites to mid-air orbit via rockets deployed from a 747 airliner in flight,.
So what
Virgin Orbit stock was responding to an announcement by NASA yesterday naming Virgin Orbit one of 12 companies that will help it put small satellites in orbit in years to come. Some of these companies, like fellow space SPAC stock Astra Space, are as small as Virgin Orbit; some are smaller, like start-up Phantom Space, and some are downright huge, like SpaceX and Boeing-and-Lockheed Martin joint venture -- United Launch Services.
NASA's contract was couched in the form of an indefinite delivery, indefinite quantity (IDIQ) defense contract that doesn't actually guarantee Virgin Orbit any revenue. But with a $300 million ceiling value and a five-year time span, chances are good that Virgin Orbit will win at least some of the money on offer as NASA chooses contractors to put its satellites into orbit over the next half-decade.
Image source: Getty Images.
Now what
Even if Virgin Orbit were to win all of the $300 million on offer (it won't) and recorded all of that money in a single year, Virgin Orbit's $2.7 billion market capitalization would still value this space start-up at nearly nine times revenues -- quite a pricey multiple. Investors shouldn't buy Virgin Orbit based solely on this single NASA contract.
That being said, the fact that NASA put Virgin Orbit on its short list is a positive sign for the stock and indicates a high level of confidence that the space agency is placing in this launch provider. Over time, that confidence could translate into more contracts from other buyers, and more revenues, and eventually some profits -- helping Virgin Orbit to one day grow into its valuation.
At least, that's the bull thesis for this growth stock. Fingers crossed that it will work out.
