If 2020 has made you dream of a trip off-planet, there’s a stock for that.
Virgin Galactic (NYSE: SPCE) shares have skyrocketed this year, with shares gaining nearly 270% over the last 12 month. And just over the last month alone, the stock is up just under 50%.
The space tourism company’s shares popped following its third quarter report last month. While the company said it last $0.34 per share in the quarter, with no sales, the company said it built a backlog for its astro-tourism business, worked on its spacecraft, and completed work on its new spaceport in the quarter.
“During the quarter we made good progress completing the final steps to prepare for [our spacecraft’s] first rocket powered test flight from Spaceport America this November,” CEO Michael Colglazier said in the company’s earnings release. “We also made meaningful progress on our second SpaceShipTwo vehicle, which we plan to unveil in the first quarter of 2021.”
Virgin Galactic also revealed that it could see “annual $1 [billion] revenue opportunity per Spaceport,” a big number that the company hadn’t floated before that excited investors.
The first Spaceport is in New Mexico, and initial commercial flights are expected in the first quarter of 2021. And the company already has a roster of 600 ticket holders who have paid as much as $250,000 each for a flight to space.
But even with these big, exciting numbers, Strategic Wealth Partners’ Mark Tepper isn’t buying the stocks recent move higher on the news.
“It’s a pure speculation, pure hype stock,” Tepper said. “It amazes me that this thing has a market cap of $7 billion and it’s going to do less than $1 million in sales this year. The valuation is absolutely crazy.”
Virgin is expected to generate around $966,000 in sales in fiscal 2020. That figure is expected to rise to $28 million in fiscal 2021 when commercial spaceflights are finally expected to begin, but Tepper argues the company’s customer base isn’t as large as investors anticipate.
“These flights are priced like somewhere in the $250,000 to $300,000 range there. My question is who can afford these?” Tepper questioned. “What’s the total addressable market? What I keep seeing from all the fulls is they’re throwing in everyone that has a net worth of $5 million-plus and there’s 2.4 million of those people globally. I think the TAM is really only those people with a net worth of $10 million and above. So now the TAM goes from 2.4 million people down to 1 million. That changes everything.”
TradingAnalysis.com founder Todd Gordon, however, argues that the stock’s high price could still be justified.
“I understand the valuation is astronomical, pun intended,” Gordon said. “But this market seems to be awarding visionary CEOs really high valuations, and I think Virgin Galactic might also be getting a boost from [Tesla CEO Elon Musk’s] success with SpaceX.”
For Gordon, there’s more than space tourism to Virgin Galactic, including commerce and logistics, which is what he believes the stock’s valuation is based on.