Insiders are cashing out from Virgin Galactic Holdings, Inc. (NYSE:SPCE). Among them is Richard Branson. I am bearish on the stock.
Branson sold about $300 million worth of the company’s shares, according to a regulatory filing, via his company Virgin Investments Ltd. (See SPCE stock charts on TipRanks)
Insiders are Selling; Analysts Say Hold
Insider selling is usually a bearish sign for a stock, as insiders have better knowledge than the public about the economic and financial situation of the underlying company.
Nonetheless, according to 11 Wall Street analysts following the stock, Virgin Galactic is a Hold. The average SPCE price target of $36.67 implies 38.5% upside to current trading levels.
TipRanks' Smart Score rating system doesn’t support the analysts’ bullish sentiment. Virgin Galactic scores a 2 out of 10, indicating that the stock is likely to underperform the overall market.
Additionally, the company has reported a string of losses, as it has plenty of costs to reckon with and no revenues from operations.
An Ambitious Enterprise with Many Challenges
Virgin Galactic is an ambitious enterprise. It develops spacecraft to take tourists around space, and has made significant progress in fulfilling this ambition.
Here’s a statement from Michael Colglazier, CEO of Virgin Galactic, following the announcement of the second-quarter results, ended June 30, 2021.
“In the second quarter, we made meaningful progress towards commencing commercial service in 2022. We successfully completed two spaceflights from New Mexico — the latest carrying a full crew of mission specialists in the cabin and garnering an extraordinary global media and consumer response. In addition, we received FAA approval to expand our existing launch license, marking the first time the FAA has licensed a Spaceline to fly customers to space.
"Leveraging the surge in consumer interest following the Unity 22 flight, we are excited to announce the reopening of sales effective today, beginning with our Spacefarer community. As we endeavor to bring the wonder of space to a broad global population, we are delighted to open the door to an entirely new industry and consumer experience.”
There has been a great deal of excitement among momentum investors upon seeing Virgin Galactic reach yet another milestone towards commercialized space travel.
However, this excitement should be tempered due to a couple of challenges. Finding enough adventurous, wealthy individuals eager to go to space is one.
There are also the heavy investments the company must undertake to reproduce its advantage, a significant problem for airlines, which have been poor investments. Not to mention the dozens of government rules and regulations the company must comply with to keep its flights in the sky, and beyond.
Lastly, there’s the risk of accidents that cool off enthusiasm for space traveling, and the company’s shares.
Summary and Conclusions
Virgin Galactic is a young company, with grand ambitions and many challenges. Its shares are more like a long-term call option, rather than a stake in a value-creating enterprise.
Insider selling should temper investor enthusiasm for Virgin Galactic’s shares. The company has a long way to go to create meaningful revenues and prove to Wall Street that its business model is working.
Disclosure: At the time of publication, Panos Mourdokoutas did not have a position in any of the securities mentioned in this article.
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