Is Virgin Galactic Stock A Buy After Worst Week Ever?

Virgin Galactic Stock fell over 6% in premarket trading.

Virgin Galactic(SPCE) launched founder Richard Branson into space on July 11, ahead of Blue Origin's Jeff Bezos.So, is SPCE stock a good buy? For the answer, take a look at the space company's earnings and stock chart.

But on July 12, Virgin Galactic filed a regulatory notice that itplans to sell up to $500 million in stock. That triggered the worst weekly sell-off since SPCE stock became public.

Virgin Galactic Stock Fundamental Analysis

SPCE stock debuted on the NYSE on Oct. 28 2019, becoming the first publicly traded commercial space tourism company after a reverse merger with Social Capital Hedosophia Holdings.

But it is still not flying paying passengers to the edge of space yet, so there is no revenue coming in and losses are piling up. On May 10, Virgin Galactic reported a Q1 per-share loss of 55 cents, missing Wall Street expectations for a loss of 31 cents a share and widening from 30 cents a year ago, on no revenue. Available cash slipped to $617 million from $666 million in Q4. The company expects free cash outflow to worsen to $60 million in Q2 from $50 million in Q1.

Still, the July 11 test flight was a key step toward the start of commercial service. The flight evaluated the customer cabin with a full crew, demonstrated the conditions for conducting human-tended experiments, and confirmed that the training program at Spaceport America supports spaceflight. Virgin Galactic has two more flights, including one with the Italian Air Force, to close out its test program. It plans to start commercial service in early 2022.

Virgin Galactic has lined up further scientific research flights, another key revenue stream for the commercial space company. A researcher for the International Institute for Astronautical Sciences will conduct experiments with new healthcare technologies during a space flight that could happen as early as next year. A future NASA-funded research mission will include a planetary scientist. So far, it is unclear how much each seat on the research flights will cost.

Virgin Galactic will report Q2 results after the market closes on Aug. 5. Analysts polled by FactSet expect the company to report a loss of 33 cents per share vs. a 30 cent-per-share loss in the year-ago quarter. Revenue is seen rising to $400,000 from none a year ago. Virgin has not started revenue-generating flights but has some small revenue streams outside of commercial flights.

While the company began as a space tourism company, analysts have also notedVirgin 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.

Virgin is partnering withBoeing(BA), whose venture capital arm HorizonX has a $20 million minority stake in Virgin Galactic, in high-speed travel.

Virgin Galactic said in February 2020 that it sees a"huge opportunity" to apply high-speed global mobility technologyto reduce travel time. Then-CEO Whitesides told CNBC at that time the company wants to integrate its vehicle into national airspace systems, allowing it to land at airports and link to local transport networks.

But Wall Street, which once had all buy ratings on SPCE stock, has turned more bearish on the company. Bank of America lowered Virgin Galactic stock to underperform on June 30, noting that the premium already priced into the stock is likely to decline as more space tourism companies go public.

More Space SPACs Ahead

Investors in Virgin Galactic stock could soon get another option to invest in space. Founder Richard Branson has hired Credit Suisse Group AG and LionTree LLC to find a special purpose acquisition company (SPAC) to take it public, sources told the Wall Street Journalin mid-March.

The news came as Virgin Orbit, a spinoff of Virgin Galactic, launched 10 satellites into space on Jan. 17 after a key test flight stumbled in May. Virgin Orbit uses Cosmic Girl, a modified Boeing 747, to take the LauncherOne rocket to an altitude of 35,000 feet, where it is released and ignited to continue on to space.

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 space sector is becoming increasingly more crowded, with more opportunities for investors outside of Virgin Galactic as blank check companies plan to take Rocket Lab, Spire Global, and others public.

SPCE Stock Technical Analysis

Shares were building a deep cup-with-handle base with a 57.61 buy point but lost support at the50-day lineand 200-day line amid the sell-off.

After diving in every session this past week, SPCE stock ended with a loss of 38.6%, marking the worst weekly drop since its blank-check merger closed.

Virgin Galactic has anIBD Composite Ratingof 45 out of a best-possible 99. The key rating combinesfive other IBD stock ratings.The stock also has a poor 44 EPS Rating.

The relative strength line spiked after the completion of the test flight in May.

The stock has an Accumulation/Distribution rating of D-, indicating more selling than buying by institutional investors.

Virgin Galactic stock is ranked No. 25 in IBD's Aerospace/Defense Group.

Key Investors Unload SPCE Stock

Cathie Wood's exchange traded funds launched a massive sell-off of Virgin Galactic shares in late March.

ARKX Space Exploration (ARKX) began with 672,000 shares back in March dumped all Virgin Galactic stock by May. Her ARK Autonomous Technology & Robotics (ARKQ) ETF sold 1.65 million shares during May and no longer has a position.

Branson sold about $150 million worth of shares, about 2.5% of the space tourism company, in mid-April, according to a recent regulatory filing.

In early March, Chamath Palihapitiya, the chairman of Virgin Galactic, tweeted that he sold his 6.2 million-share personal stake. The stock was worth about $213 million. But he still owns 15.8 million shares via his special purpose acquisition company, Social Capital Hedosophia Holdings, which took SPCE stock public.

Ramp To Commercial Service

Virgin Galactic unveiled itsSpaceShip III spaceplanein late March. The spaceplane will undergo its own flight test program. Then SpaceShipTwo, the WhiteKnightTwo mothership, and SpaceShipThree will undergo maintenance or improvement.

Branson's July 11 flight showed off the interior of SpaceShipTwo. Aluminum and carbon-fiber seats are individually sized and the fabric was created byUnder 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.

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 tocreate an astronaut training program. SPCE stock jumped on the news.

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.

Last May, 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 withLockheed Martin(LMT) Skunk Works. Such technology could make supersonic passenger service more feasible.

Virgin Galactic is eyeing that potential market too. In August, it signed a memorandum of understanding with Rolls-Royce 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.

Management Shake-Up

On March 5, former CEO George Whitesides announced he was stepping down from his role as chief space officer less than a year after the position was formed.

Whiteside's departure isn't the only recent management change for Virgin Galactic. CFO Jon Campagna stepped down on March 1 and was replaced by Doug Ahrens, who had served as CFO of chipmaker Mellanox.

Virgin Galactic named Swami Iyer as president of aerospace systems and Stephen Justice as vice president of engineering. Justice previously worked at Lockheed's top secret Skunk Works research facility.

And in July 2020, Virgin Galactic appointedMichael Colglazier as the new CEO. In his previous role as president ofDisney(DIS) Parks International, Colglazier was responsible for operations, strategy, and commercial and experiential development of the company's parks and resorts.

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 2022. SPCE stock is not in buy range, yet.

Bottom line: Virgin Galactic stock is not a buy underCAN SLIMcriteria and it is not yet in a buy zone.