Virgin Galactic (NYSE:SPCE) is going on a very dangerous journey over the next 12 to 18 months. Amid multiple signs that SPCE stock could very well continue to crash during this trip, I continue to recommend that investors find a way to disembark from Virgin.
More specifically, past technical issues, insider stock sales, and tough upcoming competition are among the reasons that I continue to be bearish on the name.
Past Technical Issues
As I noted in my January column on SPCE stock, ” On Dec. 13, 2020, during an attempted spaceflight, the engine of Virgin’s space vehicle ‘did not fully ignite as it attempted to launch,’ company CEO Michael Colglazier reported.” Further, he said the ship’s computer had “lost connection” with the “‘rocket motor’ {and} the launch was automatically terminated.”
In that article, I explained why I thought that the incident would deter wealthy individuals from joining Virgin Galactic’s space journeys. But, with such voyages seemingly unlikely to launch for some time, a bigger concern for the owners of SPCE stock is how the company’s upcoming test flights will go. On May 20, the company stated that its next “test flight” is slated to take place on May 22, “subject to weather and technical checks,” Yahoo Finance reported.
But after January’s incident, I fear that there could be other mishaps during tests that could cause SPCE stock to plunge. I think that such issues could harm the shares later this week and over the longer term.
Also not helping my confidence in the upcoming test flight are issues that Virgin has identified with the mothership that seems likely to be used during the test and the “repeated delays” of the test flight.
Over the longer term, Virgin Galactic is reportedly looking to take civilians to space next year. Any further delays of that target could very well cause its shares to crater.
Billionaires’ Stock Sales Aren’t Reassuring
Another reason to be extremely cautious on SPCE stock is that, in recent months, two billionaires have sold massive amounts of the shares.
Specifically, as InvestorPlace reporter Sarah Smith noted last month, Richard Branson, who launched Virgin Galactic, sold $150 million of the company’s stock, leaving him “with a stake worth roughly $1.6 billion.” And in March, billionaire Chamath Palihapitiya unloaded all of his shares, receiving $200 million for his stake.
As Smith wrote, famed investor Peter Lynch has said that insiders sell stocks for many reasons, including their “need for some money to send a kid to college.” And, for exactly that reason, it’s true that the stock sales of company insiders are not always alarming. She also pointed out that Branson is believed to have sold his shares to fund other investments.
But nonetheless, there are a few reasons why I think that theses stock sales are worrisome. First of all, they occurred within several weeks of each other. Secondly, Palihapitiya sold his entire stake in the company.
And finally, both men are billionaires, not CFOs or company vice presidents whose net worth may be something like $10 million to $15 million. They’re not even CEOs who may be worth close to $100 million.
I think it’s more than reasonable to assume that Branson and Palihapitiya, unlike most top company executives, have dozens of sources from which to easily raise many millions of dollars of cash. The fact that both, within a short time of each other, chose to raise a great deal (even for them) of cash by selling SPCE stock, should, I think, worry those who own the company’s shares.
Increased Competition
Over the longer term, as Smith reported in February, Virgin Galactic is going to be facing some very difficult competition. After leaving Amazon (NASDAQ:AMZN) next quarter, Jeff Bezos is going to have more time to focus on his own space tourism company, Blue Origin, which is slated to launch its own space flight by the end of next year. And, by December, Elon Musk’s SpaceX plans to launch its own civilian space mission.
Facing off against two of the most successful and disruptive CEOs of the current generation may not be an easy task for Virgin Galactic.
The Bottom Line on SPCE Stock
With Virgin Galactic facing very difficult challenges and showing troublesome signs, its shares are a sell.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.