SPCE stock rally faces a test as short interest nears 30% ahead of earnings

Virgin Galactic stock has risen for seven consecutive days, reaching its highest point since June 22nd as investors bought the dip in space companies. SPCE jumped to $3.30 on Tuesday, up by nearly 40% from its lowest level this year. Focus now shifts to its earnings report, which comes at a time when its short interest has jumped to nearly 30%.

Virgin Galactic is a highly shorted company

Investors have continued shorting Virgin Galactic’s shares. Seeking Alpha data shows that the company is one of the most shorted in Wall Street, with its short interest rising to nearly 30%. This means that a third of its shares are held by these investors who believe that it will continue falling.

These short-sellers have done well as the stock remains 63% below its highest level this year. This retreat happened after a short squeeze that jumped from a low of $2.13 in April to a high of $8.90 on June 1. The initial squeeze happened as most space companies jumped ahead of the SpaceX IPO. 

There are reasons why these investors are short the company. One of the main concerns is its cash burn, which is happening because the company is yet to start commercial operations. In April, it generated about $52 million in an at-the-market offering and had about $84 million remaining in this program. 

These ATMs have led to a substantial dilution among long-term investors, and, sadly, there is a risk that the company will raise more cash in the coming months. Even after the start of its commercial operations, it will take more time for the company to turn a profit. 

Additionally, Virgin Galactic is a company in an unproven industry. While its business has seen substantial bookings, it is not clear whether the business will have sustainable growth over time. 

Virgin Galactic to publish earnings

The next key catalyst for the SPCE stock will be the upcoming earnings, which come on August 12 after the market closes. 

These results are not expected to show substantial revenue growth. Indeed, the average estimate among analysts is that its revenue came stood at just $128k in the quarter. For the year, analysts see the annual revenue rising to $12.72 million and then hitting $297 million next year.

In the last financial results, the company said that its cash position stood at $251 million in the first quarter. Its operating expenses stood at $66 million, a big improvement from the previous $89 million. Also, its net loss improved to $65 million from $84 million in the same period last year. 

The company will have a chance to update on its business. In its last earnings report, the company said that it will continue its SpaceShip testing, ahead of its flights in the fourth quarter of next year.

SPCE stock technical analysis

Virgin Galactic stock chart | Source: TradingView

The daily chart shows that the Virgin Galactic share price bottomed at $2.42, its lowest level in June, July, and August this year. It formed a triple-bottom pattern, a common bullish reversal sign in technical analysis. 

The stock has now jumped above the 50-day Exponential Moving Average (EMA), a sign that bulls are gaining control. Also, the Relative Strength Index (RSI) has jumped to 62, a sign that the upward momentum is continuing. The ADX index has also moved to 25, a sign that bulls are in control for now. 

Therefore, there is a likelihood that the stock will jump after earnings. If this happens, it will jump to the psychological level of $5.