Virgin Galactic's High Opportunity Cost and Speculative Nature Make it Unsuitable for Holding or Buying

Virgin Galactic's commercial aviation company aims to offer suborbital space tourism flights from mid-2026. The stock has declined in value, previously holding a $12 billion market cap driven by retail investors. The company is considered too speculative to buy due to high opportunity costs.

Virgin Galactic (NYSE: SPCE), a commercial aviation company aiming to offer suborbital space tourism flights from mid-2026, has seen its stock price decline significantly over the past five years. Originally valued at a $12 billion market cap driven by retail investors, the stock has now fallen to approximately $150 million. The company's high-risk, speculative nature, combined with its capital-intensive and excessive cash-burn business model, has led analysts to question its viability [1].

Despite recent fluctuations in the stock price, SPCE remains a high-risk investment. The company has not shown significant improvement in its top-line revenue and has consistently diluted investors annually. With no meaningful revenue expected in the next 12 months, Virgin Galactic faces a challenging path forward. The company will need to cover fixed costs and service a 2.5% yearly interest convertible debt maturing in early 2027, further exacerbating its financial strain [1].

The company's balance sheet as of March 2025 shows $489.5 million in total cash and short-term investments. However, based on the quarterly reports, the company is burning approximately $74 million to $88 million every three months. This trend suggests a significant decrease in liquidity, with projections indicating a ~16% decline in total cash and near-term investments for the next quarter [1].

Virgin Galactic's high-interest environment allows it to meet its convertible debt interest expense with interest income from short-term deposits. However, this situation may not be sustainable in the future, as interest rates could rise, decreasing the company's ability to cover its expenses. Additionally, the company's general and administrative expenses (SG&A) are expected to increase post-commercial flights, further straining its financial situation [1].

The company's reliance on debt and equity dilution to raise capital has been a concern for investors. While the stock has seen a recent surge, it is still down 42.50% in the past year. The opportunity cost of holding SPCE has been deemed too high, and many investors view the risk as too great to invest meaningfully in the company [1].

The company's valuation metrics are also a cause for concern. With a valuation grade of B+ and a high EV/Sales ratio, investors are skeptical about the company's ability to generate revenue in the near term. The stock price is expected to drop further, potentially reaching a valuation closer to the projected price target of $3.50 in the next 12 months [1].

Virgin Galactic's business success is highly dependent on the execution of its plans and the confidence of its management. Any unexpected issues or poor market sentiment could significantly impact the stock price. The company's ability to raise additional capital and manage its cash burn will be critical to its survival [1].

In conclusion, Virgin Galactic faces significant challenges in its path to commercial suborbital space tourism. The company's high-risk, speculative nature, combined with its financial strain, makes it a risky investment. Investors should closely monitor the company's progress and management's guidance to make informed decisions.

References:
[1] https://seekingalpha.com/article/4809347-virgin-galactic-opportunity-cost-too-high-to-hold-too-speculative-to-buy