Retail investors love SPCE, however, is it a good stock? This analysis sets out to answer this question through looking at SPCE stock information, the SPCE Stocktwits community, and SPCE Stock Financials.
SPCE Stocktwits Talk:
To find some general information about the SPCE stock, I decided to take a look at the messages posted in the SPCE Stocktwits to see what the retail investors see in the SPCE stock.
The majority of bulls are mentioning “Q4 Earnings Report” and “Short Squeeze” insider of the SPCE Stocktwits forum.
Firstly, their Q4 Earnings report was not that good, and their guidance of a -$80M Free Cash Flow for Q1 2021 is very low. Furthermore, their EBITDA decreased, their operating loss increased, their net losses were large, and they experienced a yearly share dilution of 13%. Overall, I see no reason why they are happy with this report.
Secondly, and the only reason why I would be scared to go short, is the possibility of a short squeeze. Currently, SPCE has 22% short interest with 3.2M short shares available, and a short borrow fees of 2.3%. Overall, I do not think that the short fees and the short interest are high enough to cause a short squeeze in the next 1.3 days (as there are 1.3 days to cover). This was the last thing on my checklist, and I can now conclude that I am bearish in the SPCE stock.
SPCE Stock Overview:
Space tourism is a very speculative, new, and volatile sector in the stock market, and $SPCE — Virgin Galactic Holdings Inc stock is no different. SPCE has undergone some wild swings in their price over the last couple years, jumping 350%, 212%, and 250% within the span of 3 months (2020), 3 months (Late 2020 to Early 2021), and 1 month (mid 2021) respectively. These are very large spikes in the SPCE stock price and show the speculative and volatile nature of the SPCE Stock. Additionally, after each spike, the SPCE stock then went on to drop by 67%, 70%, and 56%, in the following 1 month, 3 months, and 2 moths respectively. As we can see, SPCE can provide a lot of upside, however, it is followed by a large downside (which is easier to predict than the SPCE stock spikes).
There is definitely room to make money with the SPCE stock, however, if you are looking at a macro view, it seems more likely for you to make money by shorting it. This is due to the fact that over the past 3 years, there has only been 1 time where you could have bought under current prices, this was in 2020 after their SPAC IPO PIPE shares became unlocked and the SPCE stock dropped to $7.25.
SPCE is one of the most followed stocks on Stocktwits, as the SPCE Stocktwits forum has 136,000 followers, and over 7,500 daily messages. StockTwits is not the best source for investment information and advice (obviously), but it helps us to gain a proxy for retail investment sentiment and ideas. The SPCE StockTwits forum garners over 2.9M impressions daily and has a 66% bullish sentiment (On SPCE Stocktwits). By looking at some simple figures, we can see that the SPCE Stocktwits community (and retail investment community) likes SPCE… but is it any good?
Massive Historical Shareholder Dilution for SPCE Stock Holders:
There have been some offerings of stock to help SPCE raise money over the past couple years, but what are they using this money for?
On July 12th2021, SPCE offered $500M in stock after Branson’s successful space flight. Vigin Galactic stated that they plan to use the proceeds of this sale to pay off working capital, administrative expenses, and developing the fleet and infrastructure of their business. As an investor, I am generally alright with offerings as long as they are being invested into expanding the business and generating more sales/earnings growth than they are causing in dilution decreases. This is true (to an extent), as they are expanding their fleet, and developing their infrastructure, however, they are also using it for capital expenditures and administrative expenses (which is not good). Overall, I think this offering was bad for investors as I think the return on this offering will not exceed the amount of dilution caused.
Since the beginning of 2020 (after the PIPE lock-up expired), SPCE stock has went from 195.77M shares outstanding to a whopping 258.01M shares outstanding. This increase represents a 32% increase in shares outstanding, in just 2 years (14.9% annual shares outstanding growth)
SPCE Stock Financial Position:
Typically, high growth stocks will have high dilution figures, but will have large revenue growth (even if their net income is decreasing). However, since 2020 (the start of their large dilution) SPCE’s revenues have gone from a measly $3.8M, to $3.3M, and their net income has decreased from -$210M to -$352M.
Overall, SPCE has very high dilution, and has not been growing their revenues at all. This to me sounds like a very easy short (bear) position. However, is there more to this story than I am considering? If so, please let me know in the comments.
Overall Thoughts on SPCE Stock:
Overall, I think the best way to profit off of SPCE Stock is to short it or buy puts. I think that even if they have a large spike that their stock will fall back down below current prices within the weeks/months after a spike. Furthermore, I think their earnings were not good at all and there will be a correction tomorrow.
Originally published at https://utradea.com.
