SPCE stock forecast: Virgin Galactic is guilty by association
Virgin Galactic (NYSE: SPCE) stock price has been in a steep sell-off in the past few months. This sell-off intensified this week after its sister company, Virgin Orbit, decided to file for bankruptcy protection. The stock plunged to a low of $3.41, the lowest level since January.
Will Virgin Galactic file for bankruptcy?Copy link to section
One of the biggest technology news of the week was the decision by Richard Branson’s Virgin Orbit to file for bankruptcy. This situation played out exactly as I had predicted in this article a few weeks ago.
To be clear. Virgin Orbit and Virgin Galactic are two separate companies with different services. Virgin Galactic is building products in the space tourism industry while Virgin Orbit provided launch services for small satellites.
Still, there are concerns about Virgin Galactic’s future as well. While the company is set to begin space flights this year, it is unclear whether there is mass demand for those services. Also, the company is competing with SpaceX and Blue Origin, which are owned by the second and third-richest people in the world.
The main difference between Virgin Orbit and Virgin Galactic is that the latter seems to be well-capitalized. Its balance sheet has over $909 million in cash, short-term investments, and no short-term debt. Its long-term debt is about $415 million. This means that the company has more room to go.
However, the main challenge is that Virgin Galactic is a cash incinerator that burns millions of dollars per quarter. In February, the company the company said that its free cash flow was minus $135 million, which was higher than the previous $67 million. For the year, the company burnt $397 million.
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Unfortunately, this cash burn could continue increasing even after the company’s flights start this year since it needs to increase its investments. Therefore, I believe that Virgin Galactic is a risky investment for now because of its cash burn, unproven business model, and high competition.
SPCE stock price forecastCopy link to section
Is it safe to buy Virgin Galactic stock? In my recent SPCE stock forecast, I warned that the shares would continue falling as the Virgin Orbit crisis intensified. This view was correct as the stock has dropped by over 10% since then. On the 4H chart, it has moved below all moving averages. It also dropped below the key level at $4.94, the lowest point on February 10th.
The MACD and the Relative Strength Index (RSI) have continued dropping. Most importantly, it seems to be forming an inverted cup and handle pattern. Therefore, there is a likelihood that the stock will continue falling as sellers target the next key support at $2.50 in the coming weeks. With Virgin making headlines, a short squeeze cannot be ruled out in the short term.