Shares of Virgin Galactic (SPCE 3.15%) jumped as much as 11% early Thursday then settled to close up 4.5% as investors cheered the prospect of lower interest rates in the coming year.
There was no company-specific news to justify Virgin Galactic's pop today. But even as the broader market was roughly flat (with both the S&P 500 and Nasdaq Composite indexes up around 0.2% today), many growth stocks rallied after central bank officials indicated yesterday that they will likely cut interest rates multiple times in 2024.
Why lower rates are great for Virgin Galactic
In their December meeting yesterday, policymakers on the Federal Open Market Committee not only held interest rates flat for the third straight month but also signaled there will be at least three rate cuts in 2024. This will mark the first interest-rate reductions since the Fed began raising rates in March 2022 to combat high inflation.
Lower rates are widely considered a positive catalyst for yet-to-be-profitable growth stocks, especially if their underlying businesses might need to raise additional capital to stay afloat going forward. Incidentally, Virgin Galactic stock plunged earlier this month after company founder Richard Branson indicated his flagship Virgin Group -- one of Virgin Galactic's largest shareholders with a 7.7% stake -- has no plans to invest additional capital in the leading space stock.
Branson did, however, indicate he believes Virgin Galactic should have enough cash on its balance sheet to carry it through to sustained profitability.
"We don't have the deepest pockets after Covid, and Virgin Galactic has got $1 billion," he told the Financial Times. "It should, I believe, have sufficient funds to do its job on its own."
What's next for Virgin Galactic stock?
Virgin Galactic's next spaceflight is slated for some time in January 2024, after which management has said they'll shift to a quarterly flight frequency as they focus on scaling operations.
To that end, Virgin Galactic also recently implemented a "strategic realignment" of its resources to focus on the production of its next-generation spaceships, the first of which are expected to commence weekly revenue-generating flights starting in 2026. Virgin Galactic is currently burning over $100 million in cash per quarter and can fly at most once per month with its current ships, so those next-gen vehicles will be key in significantly increasing its flight cadence and revenue-generating capabilities.
If Virgin Galactic has any missteps along the way, however, it may be forced to raise additional cash to continue its journey. Lower interest rates starting next year could certainly help it do so on more attractive terms than it would be able to receive in today's high-interest environment.
