Virgin Galactic’s stock chart is similar to Sir Richard Branson’s descent into low orbit. The exhilarating thing about watching SPCE stock go from less than $25 at the beginning to over $62 before the flight was is that it ended up exactly where the stock began the year.

This stock is one of the most volatile this year. It has been soaring, plummeting, and it seems like there’s no stopping. Virgin Galactic is determined to be the winner of space tourism. However, this sector is now facing increasing competition from other companies.

SPCE stock is still my bearish pick for several reasons. These will be discussed in detail shortly. It’s crucial that investors who plan to invest in this high-volatility stock take a moment to examine the stock chart. (See Virgin Galactic stock charts on TipRanks)

Let’s take a look at what’s been driving volatility with Virgin Galactic, of late.

The Test Flight Delay: What Next?

SPCE stock has experienced volatile conditions this summer. SPCE stock reached $57 after Virgin Galactic’s FAA (Federal Aviation Administration), approval to fly commercial space missions. SPCE stock rose as much as 40% just one day after the dramatic increase in late June.

Since then volatility has been mostly to the negative. This stock has been under constant scrutiny by the FAA as it investigates the report on the mishap. It is a result of the July 11th flight that saw Sir Richard Branson go into space.

After Virgin Galactic’s announcement that the company will delay the Unity 23 test flight, the shares fell more than 3%. Although Virgin Galactic insists that delays in Unity flight tests and the FAA probe were not connected, recent events seem to have shaken faith among investors.

Many investors are now asking whether SPCE stock should be bought on the dip. Space tourism stocks are trading at roughly the same price as when they began this year.

The problem with Virgin Galactic’s flight control and actuation systems sounds serious, but it may be a long-term issue. Some investors might be content to sit back and wait until a better entry way is available.

Company Financials Leave Much to Be Desired

It’s worth pointing out that Virgin Galactic is likely still a ways away from running commercial space flights at scale. Investors who look at the company’s financials will see that Virgin Galactic currently has a large cash flow.

According to the Q2 earnings report of Virgin Galactic, Virgin Galactic’s operating losses soared to $73.9million this quarter. The increase in costs associated with the recent company initial flight accounted for 17% of this year-over-year rise. Virgin Galactic also saw a 15% increase in net losses to $0.94 per stock, which is $0.94 more than the year before.

Virgin Galactic spent almost $114 million on cash in the quarter. This raises concerns about potential capital raises. Virgin Galactic was able to raise $500m through a July equity offer, but this money will not be sufficient to keep the company afloat for at least another year.

SPCE’s Equity Offerings

In July, Virgin Galactic introduced an ‘at-the-market equity offering program. With the intention to issue and sell 500 million shares of its common stock, it submitted a supplement to its prospectus. SPCE sold approximately 13.7million shares of common stock to help it raise $500 million. 

Virgin Galactic plans to make use of the money from the at-the market offering to increase its spaceship fleet. Analysts caution that this could lead to worse shareholder returns. 

Investors seem to not be aware of the possibility that Virgin Galactic will need future equity offerings to finance its growth. The average investor’s exposure to future cash flows from the company is lower if there has been more dilution. This is the risk that investors are willing to take if they want to get in on growth stocks like Virgin Galactic.

Wall Street’s Take

As per TipRanks’ analyst rating consensus, Virgin Galactic is a Hold. There are 11 analyst ratings. 5 hold recommendations, 4 buy recommendations, and 2 sell recommendations.

The average Virgin Galactic price target is $31.30. Price targets for analysts can range between $48 and $25, depending on their target price. 

Bottom Line

Virgin Galactic is facing strong competition in the race to provide space tourism services to an eager clientele. SPCE stock is still a popular stock, but investors need to be cautious about this stock today due to the possibility of heightened volatility.

Disclosure: Chris MacDonald had no position at the time this article was published.

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