Virgin Galactic Holdings, Inc. (SPCE) created history on July 11, 2021, as it successfully launched a fully crewed spaceflight named VSS Unity with founder Richard Branson on board. Shares of SPCE have declined 27.4% in price over the past six months and 38.7% over the past year to close the last trading session at $5.17.

In the third quarter, SPCE’s loss per share was $0.14 higher than expected. On the other hand, its revenue beat the consensus estimate by 811.9%. On January 12, 2023, SPCE announced it was on track to begin commercial spaceline flights from the second quarter of fiscal 2023.

SPCE’s CEO, Michael Colglazier, said, “We remain on track to launch commercial service in the second quarter of 2023, and we look forward to validating the modifications to VMS Eve and VSS Unity with multiple scheduled test flights in the coming months. We are also executing on our key strategic initiatives to scale our business as a global Spaceline over the long-term.”

“With Aurora Flight Sciences building our next-generation motherships and the selection of experienced manufacturers, Bell Textron and Qarbon Aerospace, to help build our Delta Class Spaceships, we have our primary suppliers in place to expand our fleet and support our long-term growth,” he added.

The company’s second suborbital spaceplane, the VSS Imagine, will not enter service in 2023 as previously planned, as the company was prioritizing its resources towards getting VSS Unity back into service in 2023 while it ramped up design work on the Delta-class of spaceplanes that are slated to start flights by 2025. SPCE had already deferred the introduction of another vehicle named VSS Inspire.

Here’s what could influence SPCE’s performance in the upcoming months:

Disappointing Financials

SPCE’s revenues declined 70.3% year-over-year to $767K for the third quarter ended September 30, 2022. Its net loss widened 200.9% year-over-year to $145.55 million. The company’s adjusted EBITDA loss widened 89.8% year-over-year to $128.52 million. In addition, its loss per share widened 71.9% year-over-year to $0.55.

Mixed Analyst Estimates

Analysts expect SPCE’s EPS to remain negative in fiscal 2022 and 2023. Its revenue for fiscal 2022 is expected to decline 48.5% year-over-year to $1.69 million. On the other hand, its revenue for fiscal 2023 is expected to increase 856% year-over-year to $16.20 million. It failed to surpass Street EPS estimates in three of the trailing four quarters.

Stretched Valuation

In terms of forward EV/S, SPCE’s 456.30x is significantly higher than the 1.81x industry average. Its 3.93x forward P/B is 48.3% higher than the 2.65x industry average. Likewise, its 807.04x forward P/S is significantly higher than the 1.42x industry average.

Poor Profitability

SPCE’s trailing-12-month Return on Common Equity is negative compared to the 13.99% industry average. Likewise, its trailing-12-month Return on Total Assets is negative compared to the 5.20% industry average. 

Furthermore, the stock’s trailing-12-month Return on Total Capital is negative compared to the industry average of 6.76%.

POWR Ratings Reflect Bleak Prospects

SPCE has an overall F rating, equating to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by 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. SPCE has an F grade for Value, consistent with its stretched valuation.

It has a D grade for Quality, in sync with its weak profitability. Also, its 1.45 beta justifies its F grade for Stability.

SPCE is ranked last out of 29 stocks in the Airlines industry. Click here to access SPCE’s Growth, Momentum, and Sentiment ratings.

Bottom Line

After delaying its commercial run, the company looks set to launch its commercial flights in the second quarter of fiscal 2023. The viability and the frequency of its commercial flights still need to be discovered. Moreover, the company is still far from turning profitable and generating free cash flow.

Given its disappointing financials, stretched valuation, and weak profitability, it could be wise to avoid the stock now despite its low price.

How Does Virgin Galactic Holdings, Inc. (SPCE) Stack up Against Its Peers?

SPCE has an overall POWR Rating of F, equating to a Strong Sell rating. You might want to consider investing in the following Airlines stock with an A (Strong Buy) or B (Buy) rating: Deutsche Lufthansa AG (DLAKY), Air France-KLM SA (AFLYY), and Qantas Airways Limited (QABSY).

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SPCE shares were unchanged in premarket trading Tuesday. Year-to-date, SPCE has gained 49.14%, versus a 8.18% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

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