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Why Virgin Galactic Stock Popped Today

What happened

You might think that, two days after SpaceX launched four humans into the farthest reaches of space since the Apollo missions, customers' interest in paying $250,000 to $450,000 a ticket for a brief glimpse at space aboard a suborbital spaceplane would wane.

That's not how Wall Street is thinking about this, however. In twin notes covered by yesterday, space analysts at both Cowen and Jefferies Group reiterated their confidence in Virgin Galactic Holdings (NYSE: SPCE) stock as an investment.

And Virgin Galactic stock is up a strong 5.9% in response, as of 3 p.m. EDT Friday.

Image source: Getty Images.

So what

As Cowen explained in a note that included a lowering of its price target on Virgin Galactic, while "we acknowledge near-term setbacks" -- in the form of an Federal Aviation Administration investigation into a flight plan deviation in Sir Richard Branson's July 11 flight to space, and a subsequent delay of a planned Italian Air Force mission due to a manufacturing defect in one of Virgin's spaceplane parts -- "we continue to view SPCE as an important leader in the commercial space flight industry."

Arguing that Virgin's setbacks are "near term" in nature, Cowen insisted the stock should still trade above its current price, and lowered its price target only to $30 a share.

Similarly, Jefferies admitted that Virgin's setbacks could delay the company's final scheduled test flight before beginning commercial operations, pushing it out past the third quarter of 2022. But Jefferies says this is a mere "timing" issue that does not change the long-term related "trajectory of the revenue profile." Ultimately, Jefferies still sees Virgin Galactic growing to the point that, by 2028 for example, it will be carrying more than 2,000 space tourists to the edge of space every year, and generating in excess of $1.2 billion in revenue per year.

Now what

Still, the question for investors remains: Can Virgin Galactic conduct this business profitably? (And even Jefferies doesn't make that claim, despite positing an even higher share price for Virgin Galactic stock -- $33 a share.) And if Virgin Galactic cannot earn a profit from this business, then is the stock really worth the $6.6 billion that it currently sells for -- 5.5 times revenue that may only appear (and may not appear) eight long years from now?

For today at least, investors seem to be of the opinion that Virgin Galactic really is worth such a stratospheric valuation, but I have my doubts.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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