Is Virgin Galactic a Smart Long-Term Investment Now?

Virgin Galactic Holdings (NYSE:SPCE) recently achieved a major milestone in its quest to become the premier space tourism company, as it received Federal Aviation Administration approval to carry passengers, not just run test flights. However, this is still a pre-revenue company with a long and unclear path to profitability. In this Fool Live video clip, recorded on June 25, contributor Matt Frankel, CFP, and chief growth officer Anand Chokkavelu discuss whether Virgin Galactic could be a smart long-term investment right now and why it ranked No. 3 out of 10 “meme stocks” in their recent rankings. 

Matt Frankel: I’ve referred to Virgin Galactic before, as a stock that could do really well when my kids are 40. I think it is just very, very early in that industry. But just to run through some statistics, the stock’s trading for about $54 today, it’s up big today. There’s some big news that we’ll get to in a second. $13 billion market cap, 27% short interest, I would not be surprised at all if that short interest fell today. If a lot of what we’re seeing is short covering because of this good news. Up 127% year to date. It’s actually pretty close to its peak, its peak was $63 a share. Up 25% today alone because they are now the first space travel company that just got a full FAA license to carry passengers. They had a license to operate test flights, which they did successfully in May, I believe. They still have three more test flights planned, but they now have a license to carry passengers into space. That is fantastic news for the business. I don’t know if it translates into them being a $13 billion company, which is why I didn’t rank them higher. This is still for a long time going to be a very small market. I’m not sure the exact number. Is it $250,000 a seat they’re charging on the first flight? It’s something in that ballpark.

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Anand Chokkavelu: I’m not sure but that sounds right.

Frankel: It’s something in that ballpark. There is a very limited group of people who could not only afford that, but who would want to take the risk of going on one of the first few passenger space flights, so it’s going to be a very small market at first and by first, I mean for years. This is still a pre-revenue company, they’ve collected deposits and things like that, but they haven’t actually generated any revenue yet. But on the other hand, it’s usually a bad idea to bet against Richard Branson. I could say that much. If you just get this historically, he wins. He’s a winner. But I like today’s news. I do not own the stock. I was thinking about buying it earlier this year when it was in the teens. Missed opportunity. I guess you would say this was Chamath Palihapitiya’s first SPAC. This was IPOA for those who don’t know the SPAC history. Have you ever seriously considered this for your own portfolio?

Chokkavelu: I bought a basket of the Chamath SPACs, so I’ve got Virgin Galactic and I’ve got Clover Health even though neither of them are ones where I’d naturally be hyper-bullish, in a vacuum, partly because of expertise. By the way, Virgin Galactic, even though Richard Branson is a big winner. You’re going after Jeff Bezos of Blue Origin and Elon Musk of SpaceX. Whereas like, wow, this is just, you hope that the pie in the space is large enough because, these are all market share eaters.

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Frankel: Yeah, I mean, I could see the ultimate goal is obviously to bring the price point down over time, and open this up to a lot more people, and have this be like the Disney World of space, or the Carnival Cruise Lines of space, I guess would be a better comparison. But it’s going to take a long time to get it to where space travel is affordable for people like us. I don’t know about you. I don’t have $250,000 to take a quick flight in the space.

Chokkavelu: I also don’t have the courage. 

Frankel: Even if I did, I wouldn’t want to be one of the first.

Chokkavelu: I would somehow find $250,000 to not get on that flight. I’d probably owe money though, like maybe get my legs broken or something.

Frankel: I might say build up like a 10-year safety track record and then I would think about it.

Chokkavelu: Right.

Frankel: Prove to me that it’s safe. Three test flights does not do that to me. But I like this. I don’t know if I’d call it a real business yet because real businesses generate revenue, but it’s definitely taking steps in that direction.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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