Virgin Galactic (SPCE 4.24%) was always a binary stock for investors, given the nature of the business. Either this was going to be a revolutionary company with the potential to make space flight commonplace, or it would fail to get off the ground.
For much of the last two years, the downside for Virgin Galactic seemed to be more likely than any upside. Delays called the company's operations into question, and insiders have been selling shares to the tune of hundreds of millions of dollars. So, can Virgin Galactic get past this and become a great long-term investment?
What went wrong
When Virgin Galactic went public via special purpose acquisition company (SPAC) merger in 2019, management projected it would have flown 712 passengers to space by the end of 2021, and another 965 people would make the flight in 2022. If that happened, they projected $398 million in revenue this year, putting the company on its way to becoming a growth machine.
In reality, a series of delays have left the fleet almost entirely grounded. Upgrades to the mothership and spacecraft have pushed off commercial flights until later this year, at best. As those delays happened, the company's biggest shareholders, including founder Richard Branson, have been selling at a rapid clip and Board of Directors Chairman Chamath Palihapitiya just stepped down from the company. Making matters worse, 2021 revenue will be a tiny fraction of what was projected in 2019.
It's easy to understand why investors would be down on this growth stock, and shares are down 86% from their high. But in the meantime, there are some signs that Virgin Galactic could soon rebound.
Signs of life
Last week, Virgin Galactic announced that it would begin taking $150,000 deposits for space flights, planning to have the first 1,000 customers "on board" by later this year. Given the company's schedule, this likely means Virgin Galactic hopes to have $150 million in committed deposits this year, not that 1,000 people will actually take flight.
This follows a $425 million offering of convertible notes that happened in mid-January and adds to the company's $721 million in cash it held on Sept. 30, 2021. Virgin Galactic is burning about $60 million from operations each quarter, but its cash hoard of over $1 billion should get the company through to commercial operations.
Taking deposits for flights is a step in the right direction, and we should know in the next few months when the next test flights will take place. If there's a possibility that commercial flights will start in 2022, the market's pessimism could turn to optimism very quickly.
High risk and high potential
Virgin Galactic is still a very high-risk company, but right now its market cap is about $2.1 billion, and there's likely over $1 billion in cash on the balance sheet after the recent debt offering. That looks like a great value if commercial operations begin within the next year.
If customers actually begin paying nearly half a million dollars for space flights, and Virgin Galactic can collect around $2 million in revenue each time it takes off, this could be a great growth stock to own for the long term. It's certainly been a rocky ride getting there, but if we see this company take off, the sky is the limit, and I think Virgin Galactic now has what it takes to save itself from disaster.