Virgin Galactic (NYSE: SPCE) stock has faced significant selling pressure during the past few days, despite the company’s first successful passenger flight into space over the weekend.
This flight, which counted Virgin founder Richard Branson as one of its passengers, has been in the works since 2004. Many analysts speculated the venture would never achieve this goal.
However, after 17 years of work, the company has proved it can successfully take paying customers to the edge of space and bring them back safely.
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I think this shows the company’s now well on the way to full commercial operations. As such, I’ve been taking a closer look at Virgin Galactic stock to see if it could be worth adding the cutting-edge enterprise to my investment portfolio.
Cutting edge technology
Unfortunately, while the company has proven its technology works, it still has to convince the world it can make this into a sustainable business. Now the technology’s sorted, this is the primary challenge the group has to overcome.
The company has around 600 adventurers who have already paid deposits for tickets to fly into space. Costing up to $250,000 apiece, Virgin Galactic has been selling these tickets for years.
The group has slowed ticket sales while it finalised and refined its technology. But after last weekend’s successful flight, the company could start taking more bookings for wealthy customers soon.
One group of Wall Street analysts estimates the space tourism market could be worth $3bn a year by 2030. I think this shows the size of the potential market for the company.
It’s planning further test flights this year before beginning regular commercial operations in 2022.
To help fund the ramp-up to commercial operations, the firm recently announced it’s looking to raise up to $500m through the issue of new shares. This seems to be one of the reasons why Virgin Galactic stock has performed so poorly since the company’s initial passenger space flight.
Virgin Galactic stock issue
The new shares will reduce each existing investors’ claim on the business. Therefore, each outstanding share is technically worth less, diluting existing shareholders by around 6% (based on current market prices).
By comparison, over the past five days, Virgin Galactic stock has fallen nearly 19%. But over the past year, shares in the company have increased by around 105%.
Based on these figures, it looks to me as if the market’s review of the business is far too pessimistic. As such, I think there could be an opportunity here.
That said, there are plenty of risks on the horizon. Virgin Galactic isn’t the only company in the space tourism sector. It could face competition from competitors owned by Elon Musk and Jeff Bezos.
Further, this is an experimental industry. Virgin Galactic already had to deal with a deadly accident in 2014. Another severe incident would almost certainly damage the group’s reputation.
Despite these risks, I’m excited by the company’s potential. So, despite its speculative nature, I’d buy Virgin Galactic stock for my portfolio.
