Why Virgin Galactic Stock Just Jumped
On Wednesday, shares of Galactic Virgo (NYSE: SPCE) appeared to take a punch when analysts at investment bank Bernstein more than halved their price target on the space tourism pioneer – from $22 to $10.
That should have been bad news. Instead of falling, however, shares of Virgin Galactic are heading higher this afternoon and are up 5.4% as of 1:05 p.m. ET.
How can that make sense? Well, despite cutting his price target so steeply, Bernstein didn’t actually downgrade Virgin Galactic stock, leaving it to rate market performance the equivalent of a neutral rating.
Moreover, the analyst’s new price target – $10 per share – is actually above the price of around $9.20 at which Virgin Galactic is trading today. So, far from viewing the stock as overpriced, Bernstein actually views Virgin stock as priced at an 8% discount to its true value. This is why the stock is rising today.
That being said, it’s not all unicorns and rainbows at Virgin Galactic. Like TheFly.com reports, Bernstein blamed Virgin Galactic for warning it was going to need more cash to fund its continued development, then almost immediately raising $425 million through a convertible bond offering last month. Notwithstanding the early warning, the speed of this fundraising seems to have taken the analyst by surprise and indicated “that near-term cash requirements are greater than expected”.
Additionally, Bernstein still believes there are “few clear upside catalysts” to lift Virgin Galactic’s stock materially in the near term. Indeed, investors may have to wait until 2027 to see significant gains, as Virgin Galactic must complete development of its Delta-class spaceplanes in order to have a chance of breaking even based on flows. cash.
In short, if you own Virgin Galactic and like the look of today’s price spike, enjoy it while it lasts, as such gains might be rare. And 2027 is still a long way off.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.