SPCE stock price forecast: Beware of Virgin Galactic risks

Virgin Galactic (NYSE: SPCE) stock price took off this month after the company unveiled plans for its space flight services. The shares popped to a multi-month high of $5.97, the highest level since February 21st. In all, at its peak this month, the stock was about 97% above the lowest level this year.

Virgin Galactic risks remain

Virgin Galactic is a leading company that aims to become a leading player in the space tourism industry. This is a giant industry that is expected to be worth over $12 billion by 2031. It is also a capital-intensive industry with huge barriers to entry.

As a result, only three major companies are in the industry: Virgin Galactic, SpaceX, and Blue Origin. The three firms are backed by well-known billionaires, who have supported them for many years.

Virgin Galactic made headlines this week when the company unveiled the timeline for its space tourism business. The company will start flights later this month. Its first flights will carry scientists from Italy.

In the future, the flights will be open to individuals who will pay about $450k per seat. In its recent report, the company revealed that each spaceflight will generate $2.7 million in revenue against costs of about $400k. This means that each spaceflight will have a net income of over $2.3 million.

Virgin Galactic hopes to produce more Delta ships in the future. The average cost of building the ships is estimated to be between $50M and $60M. As such, Virgin Galactic hopes that it will have margins of over 75%.

Virgin Galactic has a strong balance sheet, with over $874 million in cash and short-term investments. However, the firm is also burning over $120 million in cash per quarter, meaning that it could need to raise cash in 2024.

In addition to dilution risks, there are accident risks since this is a relatively new industry. Most importantly, I suspect that there will be a price war among the three companies, which could lower its profitability.

SPCE stock price forecast

SPCE chart by TradingView

So, is it safe to buy SPCE shares? Virgin Galactic share price jumped sharply after the company unveiled plans for its first flights. It jumped to a high of $5.98, the highest point since March this year. The shares jumped above the 50-day and 100-day moving averages. It also moved above the ascending trendline shown in green.

Therefore, there is a likelihood that the stock will remain under pressure as last week’s momentum fades. More gains will only be confirmed if the stock moves above the important resistance point at $5.98. If this happens, the next level to watch will be at $6.60, which is about 39.2% from the current level.