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Should you invest in Virgin Galactic as UBS downgrades to sell amid test-flight delays?

on Oct 18, 2021
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  • Virgin Galactic shares on Monday edged lower by 1.50% after UBS downgraded the stock to sell from neutral.
  • The firm cited delays in the Unity 23 test-flight as the primary reason.
  • Analyst Myles Walton also said SPCE will be under more pressure amid an upcoming lock-up expiry.

On Monday, Virgin Galactic Holdings Inc. (NYSE:SPCE) shares fell 1.50% after receiving a downgrade from UBS. The firm lowered its recommendation to sell from neutral, citing delays in a scheduled Unity 23 test-flight. Analyst Myles Walton also thinks the upcoming lock-up expiry of about 32% of the company’s floated shares could add pressure on the SPCE stock price.

The space tourism company delayed its commercial operations to Q4 2022 from Q3 2022, for a total cumulative delay of 2.5 years. Virgin Galactic had planned to launch the commercial test-flight in the mid-2020s when it went public. The analyst thinks the delay will cause a disjointed stock performance for the better part of 2022.

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Virgin Galactic looks overvalued

From an investment perspective, Virgin Galactic shares trade at a steep P/S ratio of about 10,316, making the stock significantly overvalued. As a result, value investors may opt to stay away from Richard Branson’s rocket company.

However, following Branson’s short trip to space in July, some investors might view the step as an important pathfinder towards making space tourism commercially viable. Therefore, long-term growth investors could seize the opportunity created by the recent pullback to buy the stock.

The SPCE stock is down nearly 63% since the 8th of July.

Source – TradingView

Technically, Virgin Galactic shares appear to be trading within a descending channel formation in the intraday chart. As a result, the stock has plummeted closer to the oversold conditions of the 14-day RSI.

Therefore, investors could target short-term rebounds at about $25.87 or higher at $32.45, while $14.56 is a crucial support zone.

It could be too early to buy the rebound

In summary, although Virgin Galactic shares have plummeted nearly 63% over the last three months, the stock is yet to slip to oversold conditions, leaving room for more downward movement. 

Therefore, with more lock-up shares poised to hit the market next month, it may be best to wait for the stock to retest the key support level before buying.