Virgin Galactic, a space tourism company, has spent years planning commercial space flights and is now preparing to launch them. Recently, the company completed its final test flight, indicating the start of a new era. Commercial flights are set to generate much-needed revenue, and investors might think the stock will finally pick up after a 93% decline from its peak. However, several reasons suggest investors should remain cautious:
1. All of Virgin Galactic’s Business Depends on Monthly Flights
Virgin Galactic depends heavily on monthly commercial flights, which is a fragile business model. The flight experience involves a mothership carrying a smaller passenger ship to the edge of space and letting it glide back to Earth’s surface. Flights will only occur once a month and generate limited revenue. If anything takes Virgin Galactic’s ships out of service, the company could be in trouble. Virgin Galactic is developing its next fleet that can fly more frequently, but it will not be ready until 2026, which means they must tread carefully.
2. Cash Losses Could Result in Higher Share Count
Virgin Galactic recently completed its first space test flight but continues to burn cash, with a steady decline in free cash flow. In Q1, the company lost $139 million, and management predicts they will lose between $120 and $140 million per quarter for the rest of 2023. The company will drain another $400 million by the end of the year, which means the company might run out of cash by the end of next year. Virgin Galactic has been issuing more stock to raise money, something investors should keep in mind. However, more shares mean existing shares will represent a smaller percentage of ownership. Current outstanding shares have increased by 227% since the company went public.
3. The Stock’s Value Is Uncertain
Investing in Virgin Galactic would mean buying a stock with an unclear value in the long run. There has been no steady revenue or earnings to justify the $1 billion market cap it holds. There are still questions about growth and profit margins for the business. What if space tourism fails the case or experiences competition in the future? Financial analysts predict that the company’s earnings per share (EPS) will only flip over to a positive value by 2028, six years from now. That means the stock is highly speculative today. It’s difficult to make an informed guess on the stock’s value, making it challenging to invest.
There are Better Investment Opportunities Than Virgin Galactic
According to analysts at Motley Fool, Virgin Galactic is not among the ten best stocks to buy right now out of 10 they recently revealed. It’s best to avoid investing in the stock until there is more certainty about its future in the market.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.