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Stay Skeptical of Virgin Galactic Despite Opening of Ticket Sales

New Mexico-headquartered Virgin Galactic (NYSE:SPCE) was founded by billionaire Richard Branson with the apparent mission of taking regular folks into space. At first, Wall Street was fully on board with this mission and SPCE stock took …

New Mexico-headquartered Virgin Galactic (NYSE:SPCE) was founded by billionaire Richard Branson with the apparent mission of taking regular folks into space. At first, Wall Street was fully on board with this mission and SPCE stock took a rocket ride.

Source: Tun Pichitanon / Shutterstock.com

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Starting in the summer of 2021, however, the rocket fell back to Earth and had a crash landing. Undoubtedly, some of Virgin Galactic’s long-term investors are frustrated as the hype has given way to disappointment.

On the other hand, the company recently released some seemingly good news. At first glance, it appears that Virgin Galactic is making space tourism more accessible to the public.

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Informed investors must always read between the lines and pay close attention to the fine print, however. In the final analysis, Virgin Galactic’s path to profitability might not get any easier, anytime soon.

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A Closer Look at SPCE Stock

When a special purpose acquisition company (SPAC) stock falls below the $10 level, that’s typically not a good sign. SPAC stocks typically start out at $10, and long-term investors generally hope to keep them above that price.

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In October 2019, Virgin Galactic went public as a result of the company’s SPAC merger with shell company Social Capital Hedosophia. An extended hype phase commenced as SPCE stock shot up to the $60 level in February 2021, and then again in June of that year.

As Virgin Galactic went month after month without any positive test-flight updates, investors started to lose faith in the company. Hence, a sharp share-price decline began in the summer of 2021, and still persists in 2022.

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Fast-forward to February 2022, and SPCE stock was trading slightly below the crucial $10 level. Expect this level to be a battle zone between the buyers and sellers; anything above $10 is bullish, and anything below it is definitely bearish.

Finally, Some News

As we alluded to earlier, Virgin Galactic went month after month without any encouraging test-flight developments.

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Checking in on Feb. 17, the only updates for 2022 on Virgin Galactic’s news page involve the issuance of hundreds of millions of dollars’ worth of debt (in the form of a convertible senior notes offering).

Prior to that, in late 2021 there’s a quarterly report reminding everyone that Virgin Galactic is unprofitable. In particular, the company reported a third-quarter 2021 net earning loss of $48 million.

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And, prior to that, Virgin Galactic issued its notorious press release wherein the company effectively deferred its next test flight indefinitely. That was back in October 2021.

But finally, on Feb. 15 of this year, Virgin Galactic provided an update – not on test flights, but on the availability of space-flight tickets.

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Hey, at least it’s better than nothing. Right?

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Inflation at the Space Station

Let’s dig into the details. Apparently, ticket sales were to be opened to the general public on Feb. 16. What the customers will get is a 90-minute space journey, launching from Spaceport America in New Mexico.

Virgin Galactic CEO Michael Colglazier that the company plans to have their first 1,000 customers “on board at the start of commercial service later this year.”

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People who book the available space-flight reservations will evidently also get “access to the Future Astronaut membership community.” What that specifically involves is not entirely clear, though.

And, here’s the kicker. Remember when people assumed that Virgin Galactic’s space-flight tickets were going to cost $250,000 apiece? Don’t count on that, as inflation has apparently reached outside of the Earth’s atmosphere:

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“Spaceflight reservations are a total price of USD $450,000. Following an initial deposit of USD $150,000, customers will make their final payment before their flight.”

So, it’s a good-news, bad-news type of situation. Virgin Galactic makes it possible for everyone to enjoy space travel, assuming everyone has an extra $450,000 to spare.

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The Bottom Line

Unfortunately, Virgin Galactic’s vision of making space tourism accessible to the public, involves a sky-high cost of entry.

Meanwhile, Virgin Galactic still needs to prove its ability to book a profit. Plus, some new, positive test-flight news would be welcome.

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For the time being, then, it’s probably best to adopt a watch-and-wait stance with SPCE stock. And while you’re watching and waiting, keep an eye on that crucial $10 level, which could be make-or-break for the shareholders.

On the date of publication, David Moadel 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.

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