Virgin Galactic Stock Price Increased 5.51%: Why It Happened

By Amit Chowdhry ● December 16, 2020
  • The stock price of Virgin Galactic Holdings Inc (NYSE: SPCE) increased by 5.51% from $24.51 to $25.86 today. This is why it happened.

The stock price of spaceflight company Virgin Galactic Holdings Inc (NYSE: SPCE) increased 5.51% from $24.51 to $25.86 today. There were a few triggers that led to the stock price increase.

Before getting into the stock price increase, let’s rewind a little bit. On December 11, the stock price of Virgin Galactic was trading at $32.03, but then it fell to $27.12 by the next trading day. The trigger for that stock price drop was that the company had aborted a scheduled test flight due to a communications problem that prevented the engine on the VSS Unity from firing. Despite the test flight not having a working engine, the VSS Unity was able to achieve a perfect landing and both of the pilots returned to Spaceport America safely.

Virgin Galactic determined that it accidentally tested out its fail-safe scenario. And this gave the pilots a chance to rehearse a scenario where the motor does not ignite upon being released from the mothership. Even though this was not the intention for the launch on Saturday, it was still a valuable experience for the Virgin Galactic travelers. With this data, Virgin Galactic is also preparing to launch a series of 3 scheduled test flights and launch commercial operations later next year.

Why The Stock Price Increased

Despite the perceived setback, some analysts remain optimistic. On CNBC’s “Trading Nation” on Monday, Oppenheimer head of technical analysis Ari Wald pointed out that the drawdown in the stock price has not damaged the trend of the stock performance that much.

“What’s most notable is that this 17% drawdown really hasn’t damaged the trend of the stock’s performance that it’s developed through much of the year,” said Wald via CNBC. “It’s still above all of its moving averages indicating that this weakness is a function of that strength. Just, this is how it trades with that type of volatility.”

Wald cited the breakout of the July closing peak at above $25 as resistance that has become support. And the resistance has been formed at the recent high above $33.

Morgan Stanley analysts also cited several reasons why they see an upside to the stock price as well. The aborted test inadvertently confirmed the safety of the aircraft and investors are looking for a string of successful tests rather than the exact timing of the last test before a commercial service launches. Plus Virgin has a strong cash position to withstand extended delays.

Plus Credit Suisse kept an Outperform rating on Virgin Galactic and assigned a price target of $26 on the company.

“Certainly, these subsequent test flights could be further delayed by the time required to re-fly Test Flight 1. However, because the length of time to analyze the data and complete the root cause assessment is unknown, the date of the repeated powered test flight is TBD. While we had expected some profit taking post-event, today’s sell-off is likely to be driven by investor concerns about the catalyst timeline. Although this weekend’s powered test flight was not a success, the silver lining is that SPCE was able to prove that its built in fail-safe scenarios worked properly enabling SS2 to glide safely back to Earth without jeopardizing the safety of anyone on board. The successful triggering of fail-safe scenario should help quell some investor concerns over the risk of a catastrophic event as SPCE begins commercial operations,” wrote Credit Suisse analysts in a report via Seeking Alpha.