Virgin Galactic Holdings, Inc. (SPCE) manufactures and operates spaceships and related technology for commercial human spaceflight and commercial research and development payloads in space. However, the uncertain demand and high costs of space tourism make it a risky investment for investors.
With SPCE reporting a poor financial performance in its recent quarter, it could remain under pressure in the current turbulent macroeconomy. The company’s losses are primarily driven by investments related to the development of the future fleet and enhancements for the current fleet. With questions on whether the company can generate enough to cover its losses, the prevailing high-interest rates make its profitability prospects look bleak.
SPCE’s stock has fallen 22.6% in price over the past nine months and 40% over the past year to close its last trading session at $3.77.
Here’s what could influence SPCE’s performance in the upcoming months:
Disappointing Financials
For the fiscal first quarter that ended March 31, 2023, SPCE’s net loss widened 71.3% year-over-year to $159.39 billion. The company’s net cash used in operating activities increased 106% over the year-ago quarter to $136.07 billion.
Its adjusted EBITDA loss widened 82% year-over-year to $139.83 million. In addition, its net loss per share widened 58.3% year-over-year to $0.57.
Unfavorable Bottom-Line Estimates
Analysts expect SPCE’s EPS for fiscal 2023 and 2024 to remain negative at $1.96 and $1.56, respectively. Additionally, its EPS for the quarter ended June 30, 2023, is expected to remain negative at $0.54. Moreover, SPCE failed to surpass EPS estimates in each of the trailing four quarters.
High Valuation
In terms of forward EV/Sales, SPCE’s 80.27x is considerably higher than the 1.72x industry average. Its 119.00x forward Price/Sales is significantly higher than the 1.38x industry average.
Bleak Profitability
SPCE’s trailing-12-month gross profit margin of 7.80% is 73.8% lower than the industry average of 29.76%. Its trailing-12-month ROE, ROTC, and ROTA of negative 101.26%, 34.84%, and 54.81% compare to the industry averages of 13.83%, 7.00%, and 5.12%, respectively.
POWR Ratings Show Weakness
It’s no surprise that SPCE has an overall F rating, equating to a Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. The stock has an F grade for Stability, consistent with its 24-month beta of 1.90.
It has a D grade for Value and Sentiment, in sync with its high valuation and unfavorable bottom line estimates.
Within the Airlines industry, SPCE is ranked last out of 28 stocks. Click here to access SPCE’s Growth, Momentum, and Quality ratings.
Bottom Line
With SPCE reporting a disappointing first-quarter financial performance, the company could remain under pressure in the upcoming quarters. Given its unfavorable analyst estimates, high valuation, and bleak profitability, investors could look to avoid the stock.
Stocks to Consider Instead of Virgin Galactic Holdings, Inc. (SPCE)
While SPCE has an overall POWR Ratings grade of F, equating to a Strong Sell, one may want to consider these other stocks within the Airlines industry with an A (Strong Buy) or B (Buy) rating: Qantas Airways Limited (QABSY), Singapore Airlines Limited (SINGY), and Air Canada (ACDVF).
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SPCE shares were trading at $3.77 per share on Tuesday afternoon, down $0.11 (-2.84%). Year-to-date, SPCE has gained 8.33%, versus a 16.92% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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