Virgin Galactic Holdings, Inc. (SPCE) manufactures and operates spaceships and related technology for commercial human spaceflight and commercial research and development payloads in space. It also carries out ground and flight testing and post-flight maintenance on its spaceflight system vehicles.

On May 25, SPCE successfully completed its Unity 25 space mission. Although such milestones should generally contribute to the company’s success, SPCE faces several financial challenges which could significantly affect its overall performance.

Since its inception, the aerospace and space travel company has incurred significant losses. For the years ended December 31, 2022, 2021, and 2020, SPCE recorded net losses of $500.20 million, $352.90 million, and $644.90 million, respectively.

While SPCE has generated limited revenue from flying payloads into space, scientific research services, and fees related to its Future Astronaut community membership and Future Astronaut community event, the company has not yet started commercial human spaceflight operations.

The company anticipates starting commercial operations with a single spaceflight system in the second quarter of 2023, which has yet to complete flight testing. Such delays in completing the flight test program and the final development of its existing spaceflight system; and any inability to operate the system after commercial launch could adversely impact its business, financial condition, and the results of its operations.

The company could also require substantial additional funding for its operations. As of March 31, 2023, SPCE’s current liabilities amounted to $190.83 million, while its total liabilities were $666.73 million.

In addition, SPCE failed to convert its orders or inbound inquiries about flight reservations into revenue. As of December 31, 2022, the company’s backlog represents orders from nearly 800 future astronauts, for which spaceflight revenue has not yet been recognized.

Shares of SPCE have gained 13% over the past month to close its last trading session at $4.16. However, the stock has plummeted 39.9% over the past year.

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

Deteriorating Financials

SPCE’s total operating expenses increased 78.6% year-over-year to $163.80 million in the first quarter that ended March 31, 2023. Its net loss widened 71.3% year-over-year to $159.39 million. Also, the company’s net loss per share worsened by 58.3% from the prior year’s period to $0.57.

Furthermore, SPCE’s adjusted EBITDA loss worsened by 82% from the year-ago value to $139.83 million. Its cash outflows from operating activities grew 106% year-over-year to $136.07 million. As of March 31, 2023, the company’s total assets stood at $1.03 billion, compared to $1.14 billion as of December 31, 2022.

Unfavorable Analyst Estimates

SPCE’s loss per share is expected to widen 24.4% year-over-year to $0.54 for the fiscal second quarter ending June 2023. Similarly, for the fiscal third quarter ending September 2023, the company is expected to report a loss per share of $0.50. Moreover, the company missed the consensus EPS estimates in all four trailing quarters, which is disappointing.

Furthermore, analysts expect SPCE’s loss per share to widen by 3.4% year-over-year to $1.96 for the fiscal year (ending December 2023). In addition, the company is expected to report a loss per share of $1.56 for the fiscal year 2024.

Poor Profitability

SPCE’s trailing-12-month gross profit margin of 7.8% is 73.9% lower than the industry average of 29.85%.  Moreover, its trailing-12-month asset turnover ratio of 0.00x is 99.8% lower than the 0.80x industry average.

Additionally, SPCE’s trailing-12-month ROCE, ROTC, and ROTA of negative 101.26%, 34.84%, and 54.81% compare to the respective industry averages of 13.93%, 6.97%, and 5.07%.

Stretched Valuation

In terms of forward EV/Sales, SPCE is trading at 83.64x, considerably higher than the industry average of 1.63x. The stock’s forward Price/Sales of 127.59x is significantly higher than the industry average of 1.34x. Also, its forward Price/Book of 55.47x compares with the 2.55x industry average.

POWR Ratings Reflect Bleak Prospects

SPCE’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall rating of F, translating to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different 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 Sentiment and Stability, consistent with unfavorable analyst estimates and a 24-month beta of 2, respectively. The stock also has a D for Value, in sync with its higher-than-industry valuation. 

SPCE is ranked last in the 27-stock Airlines industry.

Click here to access the additional Growth, Quality, and Momentum grades for SPCE.

View all the stocks in the Airlines industry here.

Bottom Line

The aerospace and space travel company SPCE triumphantly soared through the recent Unity 25 space mission. However, looming financial troubles and analysts’ predictions of massive losses for at least two fiscal years reflects the company’s underwhelming performance in the future.

Given SPCE’s deteriorating financials, bleak growth prospects, low profitability, and stretched valuation, it could be wise to avoid this stock now.

Stocks to Consider Instead of Virgin Galactic Holdings, Inc. (SPCE)

Unfortunately, the likelihood of SPCE outperforming in the upcoming weeks and months ahead is significantly compromised. Nonetheless, there are several stocks in the Airlines industry with impressive POWR Ratings. So, consider these three A-rated (Strong Buy) stocks instead:

Singapore Airlines Limited (SINGY)

Qantas Airways Limited (QABSY)

Air France-KLM SA (AFLYY)

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SPCE shares were trading at $4.09 per share on Thursday afternoon, down $0.07 (-1.68%). Year-to-date, SPCE has gained 17.53%, versus a 12.37% rise in the benchmark S&P 500 index during the same period.

About the Author: Aanchal Sugandh

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns. More...

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