It has been a wild start to 2020, as stocks continue to hit new highs. Tesla, Inc. (NASDAQ: TSLA) has caught headlines over the past few months, as shares have soared 105.20% from just above $400 to its current price of $858.40. This has created a windfall for bullish traders and investors who have reaped massive profits from the meteoric rise.
However, there is another mania stock that has outperformed Tesla in 2020: Virgin Galactic Holdings, Inc. (NYSE: SPCE). The Richard Branson-led space tourism company went public in October 2018 and has skyrocketed 162.34% year-to-date in 2020. Despite the strong recent returns, Virgin Galactic investors need to heed caution and should take the opportunity to lock in profits.
SPCE Aims For First Commercial Launch in 2020
Despite Virgin Galactic being worth just shy of $5 billion, the space tourism company was never generated any revenue. However, SPCE is scheduled to launch its first commercial flight during 2020, which will effectively be the company’s first “space tourism flight.”
Virgin Galactic has continued to make progress on its test flight trials. The company recently announced that it has relocated SpaceShipTwo, VSS Unity, to the commercial headquarters at the Spaceport America’s Gateway to Space building in New Mexico. This location will serve as a launch point for its commercial flights eventually.
Until the company is able to successfully launch regularly-scheduled commercial flights, revenue generation will be scarce-to-nonexistent. Even then, the costs and potential risk liabilities associated with the emerging space tourism industry are quite significant.
How is the company equipped to deal with potential spacecraft breakdowns or issues that strand passengers in space? Investors that consider themselves long-term in SPCE should understand that this company and its future are uncertain and highly speculative.
The Billionaire Space Race is Competitive
Virgin Galactic may have the distinction of being the first publicly-traded space tourism company, but the company still faces fierce competition in the emerging industry. Tesla CEO, Elon Musk’s space company, SpaceX, is a formidable player in the space. Amazon.com, Inc. (NASDAQ: AMZN) CEO Jeff Bezos’s Blue Origin space company is another key competitor of SPCE.
On February 18, 2020, Blue Origin announced the opening of a new rocket production facility in Huntsville, Alabama. The manufacturing facility will specifically focus on making BE-3U and BE-4 engines. The BE-3U engines are capable of generating more than 1 million horsepower and can product 110,000 pounds of thrust during first launch.
On the same day, SpaceX disclosed that it has signed its first deal to launch a space tourism flight into orbit via its Crew Dragon spacecraft. The flight will feature four passengers and a “flight mission” lasting up to five days. The flight could launch as soon as late 2021.
Blue Origin and SpaceX remain private companies, but their operation improvements continue to highlight just how competitive this emerging tourism industry is already becoming. It is likely the market for consumers interested and capable of affording a trip to space will remain very limited for quite some time. The costs associated are too great for the average consumer, which makes space tourism currently geared towards wealthy individuals.
Overall, Virgin Galactic has seen a face-melting surge from just over $10 to $30 in a month and a half. This comes despite the fact that the company generates zero revenues and faces fierce competition from two other notable billionaires. The market for space tourism is very small and the risks associated with the new form of travel could be quite vast. SPCE is the latest mania stock to hit Wall Street, but it would be wise to steer clear.
Disclaimer: The author and Spotlight Growth have no positions long or short in any stock mentioned. Neither party has any relationship, or any other conflicts of interest, with any of the companies mentioned in this article. This content is meant for informational and entertainment purposes only and should not be meant as a recommendation to buy or sell any securities. Please visit a licensed financial representative to determine what investments are right for you.