2024-05-24 11:31:24 ET
The Virgin Galactic (NYSE: SPCE) stock price has continued its freefall this year as concerns about its balance sheet continued. It has plunged by over 65% in 2024 and by 81% in the past 12 months, making it one of the worst-performing companies on Wall Street.
Bankruptcy risks remain
Virgin Galactic has been one of the biggest disappointments on Wall Street. After peaking at $63 during the meme stock craze in 2021, it has become a penny stock trading for just 85 cents. As a result, its market cap has plunged from over $20 billion to less than $400 million today.
Virgin Galactic’s performance is a reflection of the fact that most people expect that the company faces an uphill battle in its journey. Some analysts, myself included, believe that it could file for bankruptcy in the coming years.
The company’s biggest challenge is that it is still not making any meaningful revenue and is burning substantial sums of money. Earlier this month, the company said that its net loss for the first quarter came in at $102 million, an improvement from the $152 million it made in the same period in 2023.
If this trend continues, it means that its cash balance of over $800 million will run out in 2025. At that time, the company will still be building its products, with the Delta Class spaceships expected to start service in 2026. The challenge is that this schedule could still be expanded as we have seen in the past.
Further, if my estimate of losing money is accurate, there are concerns about where it will raise the cash from. Richard Branson, who has funded the company for years, has ruled out providing more money.
At the same time, it has a market cap of over $371 million, which could continue dropping if the stock’s sell-off gains steam. As a result, an At-the-Market (ATM) fundraising will likely not be enough to cover its operations.
That leaves the debt market or an acquisition as the other alternatives. The issue is that debt financing in a high-interest-rate environment will be difficult. An acquisition by a private equity company, competitors like SpaceX or Blue Origin, or a wealthy individual is a possibility,
Virgin Galactic also faces other challenges. While it has received substantial bookings, space travel is still a new and unproven business. It is still unclear whether there will be long-term demand for this industry.
Is it safe to buy or short SPCE stock?
Virgin Galactic’s collapse has benefited short-sellers who still hold over 109 million shares or 29% of the stock. However, while I expect the stock to continue falling, shorting it is significantly risky because SPCE is one of the most popular meme stocks in the market.
As we saw earlier this month, a meme stock season can start at any time and lead to a big short squeeze. In SPCE’s case, the stock jumped by over 90% within a few days, leading to substantial losses to short-sellers.
Buying the stock is also risky because of the fundamental reasons I described above. Therefore, staying on the sidelines and avoiding SPCE can be a better approach
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