Virgin Galactic: Dream Big

November 28, 2019

If you have ever dreamed of going into space, then you may want to invest in Virgin Galactic because that is their mission.

Founded by Richard Branson in 2004, the company has been working on, spaceflight for private citizens and researchers.   Their SpaceShips are designed to take a payload into space and return it to earth repeatedly and at substantially lower cost than older technology like shuttles.

Virgin Galactic (SPCE) listed on the NYSE a month ago, on October 28, 2019 and after opening around $11.80, has persistently dropped in value to it current price of $7.32.

20191127 - SPCE

It is difficult to say whether this is a fair price or not.  Certainly after their latest earnings report on November 12th, the market thought the share price was too high, but how do you value a company that doesn’t really have a marketplace?

Of course we regularly value companies that produce no revenue (think of your typical early stage biotech), no earnings (think Uber or WeWork), are mere ideas (many tech companies) , but those valuation metrics are very inconsistent and troublesome.  Space travel captures our imagination, but by highlighting how difficult it is, perhaps investors sense the futility in making an investment.

Space Flight is becoming far more common now than it was a decade ago thanks to Northrup Grumman, SpaceX, Blue Origin, Virgin Galactic and many others.  There are plenty of indications that flying to space will continue to be ever more common in future with the innovations being implemented by these companies.

If you are a long term investor, SPCE may be your best chance to participate, at least for now.   With an ample balance sheet of $670MM, the company has some time to complete their development and testing and find customers for their services.   It is highly likely that there will be substantial value in the research, prototyping and experiences they gather in the coming years.

Many visionaries, authors, even scientists are now discussing the colonization of space, and one of the most difficult aspects of that process is getting people and objects past the gravitational barrier that protects us from the cold, emptiness of space.  If Virgin Galactic makes that inexpensive, repeatable and safe, the payoff could be significant.

 

Notes:

Virgin Galactic went public with what is essentially a reverse takeover of a blank cheque company.   They were priced originally at about $10/share, opened a bit higher and have gone straight down since then.

There is very little information on their balance sheet holdings, costs/expenses and so forth, but that may become clearer over time, or with a call to investor relations.

The company is selling trips into space to private citizens, but they will have a very limited market.  The real deal will likely be transporting people to and from space when space stations are more common.   It is unclear if the company will still be around then, but the technology will certainly have some value.

 

 

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