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The VSS Unity, a Virgin Galactic spacecraft, rocketed into space from New Mexico in May.
Virgin Galactic provided this image.
In space, buy and hold appears to be ineffective. Invest in stocks like
Virgin Galactic Holdings is a company that owns Virgin Galactic.
are simply too unstable. Some space stocks move more like biotech stocks than typical aerospace and defense stocks, which investors should be aware of. Between May and June, the shares of Virgin Galactic (ticker: SPCE) fluctuated between $15 and $55. Wall Street was hammering the table, pushing people to buy when the stock was $15. Analysts are more wary now that the stock is near $45.
UBS analyst Myles Walton cut Virgin Galactic stock from Buy to Hold on Tuesday, despite raising his price objective to $45 from $36. Despite the downgrading, shares of Virgin Galactic were up 8.3% in recent trade, to $48.69, demonstrating that, for the time being, standard aerospace stock rules do not apply to Virgin Galactic, at least not yet. The reason for the downgrade is simple: valuation. The analyst added, “With the stock up roughly 3x from its lows just over a month ago, we are going to [Hold].” Virgin Galactic stock is valued at 47 times expected Ebitda for 2025, which stands for earnings before interest, taxes, depreciation, and amortization. He takes the 2025 price and reduces it by 15% per year to get at a reasonable price for 2021.
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Currently trades for around 15 times projected Ebitda in 2021. Virgin Galactic, on the other hand, is predicted to rise at a significantly quicker rate than the typical stock. After the historic stock run, Walton isn’t the first or even the second analyst to criticize shares. On June 30, BofA Securities analyst Ronald Epstein lowered shares from Buy to Sell. Before that, Alembic Global Advisors analyst Peter Skibitski lowered his rating from Buy to Hold and raised his price objective from $28 to $36. When Epstein lowered the stock, he kept his price target at $41. Investors might consider abandoning a buy-and-hold strategy for Virgin Galactic in favor of the adage “Buy the rumor, sell the news” based on the pattern of downgrades. Drug approvals and partnerships, for example, are catalysts for biotech stocks. Investors frequently own a portfolio of biotech stocks to reduce the risk of a single medicine approval decision by regulators going wrong. However, there isn’t a space tourism stock basket to invest in. There is one of these. Traders will reduce positions into catalysts when there is only one stock, such as a biotech. It’s a tried-and-true approach of buying before of news and selling after it breaks. As a result, Galactic investors must keep track of both catalysts and stock pricing. Investors are looking forward to another test flight by Sir Richard Branson, which is scheduled for July 11th. This might be a short-term catalyst for the stock market. However, the catalytic schedule becomes a little quieter after that. In his downgrading report, Walton adds, “Beyond the summer of flights, there is expected to be less news flow in the fall when the flying program stands down for maintenance into 1Q22.” With Walton’s downgrade, three out of ten analysts tracking Virgin Galactic stock currently rate the stock as Buy. The average Buy-rating ratio for S&P 500 stocks is around 55%. Coming into Tuesday, shares were up almost 89 percent year to year, considerably outperforming the S&P 500 and other benchmarks.
The Dow Jones Industrial Average is a stock market index that measures how well a
With these increases, the company is now trading considerably above the average analyst price objective of $33 per share. Al Root can be reached at allen.root@dowjones.com./n
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