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Vertical Research Partners describes the stock of Virgin Galactic Holdings Inc. as a “one-of-a-kind opportunity to invest in space tourism.”
Vertical Research Partners is the first company that started covering Virgin Galactic, the space company founded by British billionaire Richard Branson. They gave it a “buy” rating and said its risk “is misunderstood.”
In his letter to investors analyst Darryl Genovesi wrote:
“We think the technical risk to SPCE’s human spaceflight program is less draconian than the stock appears to be pricing in.”
Virgin Galactic had its IPO last week, following the realization of its merger with Chamath Palihapitiya’s company Social Capital Hedosophia.
Genovesi says Virgin Galactic, ticker ‘SPCE,’ is remarkable for being the only stock that investors can trade in a “niche but growing market.”
“SPCE is the only means by which a public equity investor may gain pure-play exposure to human spaceflight, a socially-important endeavour, and the only means by which a public equity investor may gain ANY exposure to space tourism, creating scarcity value that we think can drive the stock higher as the risk-profile becomes better understood by investors.”
Shares of Virgin Galactic initially rose in trading on Tuesday following Genovesi’s call. However, the day after, at the time of writing, the stock slipped 1.34% and it is currently trading at $9.57 per share. Vertical Research said the share price target is $20 that is more than double than its current price.
As we had previously reported, the company was founded back in 2004 and has spent more than $1bn developing its program, which is far behind what was previously expected, and took a hit after a fatal accident in 2014.
For 2023, the company is predicting to make 270 trips to space, which would get it around $600m and generate a profit of more than $430m.
Genovesi commented the safety risk has a significant weight on Virgin Galactic’s stock price, saying “the market appears to imply a high probability of failure, higher than we believe is appropriate.”
He also funnily said that investors are using “a Space Shuttle like crash rate” in order to estimate Virgin Galactic’s potential failure rate.
Vertical Research partners sees Virgin Galactic’s spacecraft possibly comparable to the X-15 rocket-powered aircraft made in cooperation of NASA and the US Air Force in the 1960s. The X-15 crashed once in 199 flights, a crash rate of 0.5%. Comparing to it, the Space Shuttle had two fatal accidents in 135 flights, a slightly bigger crash rate of 1.5%. But that isn’t an accurate comparison, Genovesi said adding that this happened 5- years ago.
Nearly 600 people, including some celebrities like Justin Bieber, have already put down deposits for the 90-minute experience. The ticket for one person will cost about $250,000 per ticket.
Genovesi repeated words said by Virgin Galactic CEO George Whitesides about the space tourism venture being a bet on the fast-growing luxury experiences market.