Virgin Galactic (SPCE) reported mixed fourth-quarter results on Feb. 22. So is Virgin Galactic stock a buy? Investors first need to look at the stock's long-term fundamentals and stock action.
XThe commercial space company reported a loss of 32 cents on revenue of $141,000. Analysts polled by FactSet expected a loss of 35 cents on revenue of $300,000.
Virgin Galactic expects Q1 free cash flow to be a loss of $75 million to $85 million. It currently has $931 million in cash on hand.
Virgin Galactic said earlier that the ramp-up of Delta class spacecraft will determine when the company becomes cash flow positive. But Virgin Galactic doesn't see the Delta class spacecraft starting research flights until 2025 and won't enter commercial service until 2026.
That's later than some analysts were projecting. UBS analysts wrote in September that they expected the ship to enter service in 2024.
The earnings report came just days after chairman Chamath Palihapitiya stepped down. Palihapitiya was Virgin Galactic's first chair and was instrumental in taking the special purpose acquisition company pubic in 2019.
"As I close this chapter in order to focus on other existing and upcoming public board responsibilities, I am proud to leave the team in such capable hands and I look forward to watching their success for years to come, and one day flying to space with them," he said in the release.
The board appointed director Evan Lovell as the interim chairman until a new chair is chosen. Lovell has been on the board since 2017 and is the chief investment officer of the Virgin Group.
Virgin Galactic's Flight Schedule
The company reopened ticket sales to the general public on Feb. 16. Sales had been closed since October after they were briefly opened following founder Richard Branson's flight in July.
"We plan to have our first 1,000 customers on board at the start of commercial service later this year, providing an incredibly strong foundation as we begin regular operations and scale our fleet," CEO Michael Colglazier said in the announcement.
The company has about 250 seats remaining as part of a push to sell 1,000 seats. It expects to have the rest of the seats filled by the time commercial service starts later this year. But officials wouldn't say if all 1,000 customers would fly before its Delta class spacecraft enters service.
Virgin Galactic's ticket prices start at $450,000, above a previous price point of $250,000. But the higher ticket price "has been well received," according to Virgin.
The ticket sales come as Virgin Galactic wraps up its enhancement program on its VMS Eve and VSS Unity. The company had expected commercial service to start in late Q3, later than a previous timeline for early 2022, which was pushed back from early 2021.
The company reshuffled some test launch targets back in October, delaying the start of commercial flights until the fourth quarter of 2022 as it started its lengthy enhancement and refurbishing program.
It now expects its Unity 23 test flight with the Italian Air Force, which was originally targeted for late October, to fly this year.
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SPCE Stock Technical Analysis
Shares have continued to tumble following Virgin Galactic's announcement to delay commercial flights. SPCE stock surged on news that ticket sales will open to the public, but slashed those gains in the next few days. Shares are right at their 50-day line following Q4 earnings.
Virgin Galactic has an IBD Composite Rating of just 12 out of a best-possible 99, according to MarketSmith. The key rating combines five other IBD stock ratings. The stock also has a poor 27 EPS Rating.
The relative strength line spiked after Branson's flight in July but is slumping again to all time lows.
The stock has a worst-possible Accumulation/Distribution rating of E, indicating that institutional investors are offloading their SPCE shares.
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Virgin Galactic Fundamentals
SPCE stock debuted on the NYSE on Oct. 28, 2019, after a reverse merger with "black check company" Social Capital Hedosophia Holdings.
Other space stocks quickly followed suit including Spire Global (SPIR), Momentus (MNTS) and Astra Space (ASTR). Vector Acquisition's shareholders approved its proposed merger with Rocket Lab on Aug. 20. It started trading under RKLB on Aug. 25.
Richard Branson's Virgin Orbit announced Aug. 23 that special purpose acquisition company (SPAC) NextGen Acquisition Corp. II (NGCA) would take it public.
Virgin Orbit and Virgin Galactic were split in 2017 so Virgin Orbit could focus on low-cost launch services for small satellites for the U.S. military and other customers. It already has a $35 million three-launch deal with the Space Force and is working with the Air Force on launches from Guam.
The emergence of more space stocks gives investors additional opportunities outside of Virgin Galactic.
Key Investors Unload SPCE Stock
Cathie Wood's exchange traded funds launched a massive sell-off of Virgin Galactic shares starting in March 2021.
ARKX Space Exploration (ARKX) began with 672,000 shares back in March but dumped all Virgin Galactic stock by May. Her ARK Autonomous Technology & Robotics ETF (ARKQ) sold 1.65 million shares during May and no longer has a position.
After his first flight, Branson sold $300 million in Virgin Galactic stock, about 4% of the company, according to a regulatory filing Aug. 13. He still has an 18% stake and remains Virgin Galactic's largest shareholder.
The asset sale came as the more infectious delta variant of Covid-19 spread. Branson plans to use the proceeds of the stock sale to help support its other Virgin travel businesses, Virgin Group told Bloomberg.
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Ramp To Commercial Service
Virgin Galactic unveiled its SpaceShip III spaceplane in late March 2021. The spaceplane will undergo its own flight test program.
Branson's July 11 flight showed off the interior of SpaceShipTwo. Aluminum and carbon-fiber seats are individually sized and the fabric was created by Under Armour (UAA), which also designed Virgin Galactic's spacesuits. A large mirror in the back of the cabin allows astronauts to see themselves weightless during flight. The cabin also features 17 windows and 16 cameras.
While Branson's flight landed safely, the Federal Aviation Administration opened a probe in September into the July 11 flight for veering off its projected flight path during descent. The flight also included two pilots and three crew members. The probe has since been closed.
"Our test flight program is specifically designed to continually improve our processes and procedures. The updates to our airspace and real-time mission notification protocols will strengthen our preparations as we move closer to the commercial launch of our spaceflight experience," Colglazier said in a release.
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Virgin Galactic's Space Ambitions With NASA
While making strides in commercial space tourism, the company has also been busy racking up deals with NASA. In June 2020, Virgin announced an agreement with the space agency to create an astronaut training program.
Under the deal, the company will "develop a new private orbital astronaut readiness program" for customers looking to go to the International Space Station. Virgin also will find customers that want to buy astronaut missions to the station, book transportation to the ISS and perform on-orbit and ground resources tasks.
Then in May 2020, Virgin Galactic announced a separate deal with NASA to help develop a sustainable high-Mach supersonic aircraft.
NASA, which also performs aeronautics research, has been working on a high-Mach flight, one that doesn't produce a sonic boom, under its Supersonic X-59 program with Lockheed Martin (LMT) Skunk Works. Such technology could make supersonic passenger service more feasible.
Virgin Galactic is eyeing that potential market too. It signed a memorandum of understanding with Rolls-Royce in 2020 to collaborate in designing and developing engine propulsion technology for Mach 3 commercial aircraft. Rolls-Royce built the engine for the Concorde, which flew at Mach 2.
The Rolls-Royce announcement included an initial design concept of the aircraft, which could carry nine to 19 passengers and fly at an altitude above 60,000 feet. Management has said that a Mach 3 aircraft has the potential for travelers to do a round trip in one day between 85% of the most frequently traveled global city pairs.
While Virgin Galactic began as a space tourism company, analysts have also noted Virgin Galactic's potential in hypersonic point-to-point travel, by using its space plane to take passengers across continents in a fraction of the time it takes today.
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Is SPCE Stock A Buy?
While IBD typically advises investors to focus on companies with strong earnings growth, newly public companies can also merit attention if they show strong revenue growth. Virgin Galactic, however, has neither.
While it has NASA contracts under its belt and its powered test flight reached space, commercial service has been delayed until Q4. SPCE stock is not in buy range.
Bottom line: Virgin Galactic stock is not a buy under CAN SLIM criteria and it is not in a buy zone.
Investors can check out IBD Stock Lists and other IBD content to find dozens of the best stocks to buy or watch.
Follow Gillian Rich on Twitter @IBD_GRich for space news and more.
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