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Why Virgin Galactic Stock Will Come Crashing Back to Earth, Crypto Coins News

Why Virgin Galactic Stock Will Come Crashing Back to Earth, Crypto Coins News
  • Virgin Galactic’s stock price has been soaring in recent weeks.
  • The company initially claimed it would be sending tourists to space by summer. But management seems to be backpedaling.
  • Virgin Galactic’s murky financials are cause for concern. Investors should be cautious about the stock.

Virgin Galactic (NYSE: SPCE) is a stock that investors want to believe in. It’s a pioneer in space tourism. And it’s the only publicly-traded game in town since Blue Origin and SpaceX are both private.

That’s why the startup has seen its market cap rocket to $ 6.6 billion despite having massive operating losses and negligible revenue.

Virgin Galactic’s share price has soared since its IPO in October . | Source: Yahoo Finance

But behind the glitz and glamor lie some serious red flags. Management has provided optimistic projections that they will be hard-pressed to fulfill.

Virgin Galactic’s balance sheet and murky financial filings are suspicious too.

Something Is Fishy About Virgin Galactic Stock

Virgin Galactic’s recent move upward coincides with CEO George Whiteside’s public appearance on CNBC’s “Squawk Alley,” where he spoke about the company progress towards sending its first tourists to space.

While Whitesides, a former chief of staff at NASA, seemed optimistic, he stopped decidedly short of giving a timeline for commercial operations.

) When asked if Virgin Galactic will be ready to take tourist to space by summer, he hesitated:

In this business, we have to take every step – step by step and do it safely. Yesterday’s flight was huge in the sense that we took our beautiful spaceship down to spaceport America and it was a really important flight. And now what we can do is we’ll check out the vehicle and we’ll start moving through our progression of tests.

This cautious commentary is prudent. But it is in stark contrast to the forecasts the Virgin Galactic put out when it first went public.

In a corporate presentation that is now suspiciously absent from Virgin Galactic’s website , management claimed that they could start commercial operation by June . They further projected a % jump in revenue from $ 067 million to $ (million between fiscal and , as well as EBITDA profitability by

Is management walking back the projections they made for ? If they are, that should be a massive red flag for investors. More Red Flags

Unfortunately, the red flags don’t stop with the vanished presentation. The details of Virgin Galactic’s public offering raise more suspicions.

Instead of a traditional initial public offering (IPO), (Virgin Galactic went public through a reverse merger with a blank check company called Social Capital Hedosophia.

That name alone is creepy, but the weirdness does not end there. By going public in this way, Virgin Galactic may have bypassed some of the strict listing requirements for the New York Stock Exchange.

according to Tim Fernholz of Quartz, this type of offering allows Virgin Galactic to hide years of financial data .

What could they be hiding?

Expect Dilution

Investors must accept that dilution is inevitable. | Source: REUTERS / Brendan McDermid

With virtually zero revenue at the time of its IPO in October, Virgin Galactic is much less mature than the typical publicly-traded company. Yet despite not generating revenue, Virgin Galactic earned $ 7.2 million in net income because of interest gained from a massive pile of marketable securities on its balance sheet.

The marketable securities, worth $ 800 million, are short term Treasuries in a trust account. Virgin Galactic inherited them when it merged with Social Capital Hedosophia. But how will these funds be used – will they benefit investors, or are they part of some obscure financial engineering strategy?

Virgin Galactic states the following in its quarterly report .

As of September 48, , the Company had $ 167, in its operating bank accounts, $ , 489, 728 in securities held in the Trust Account to be used for a Business Combination or to repurchase or redeem its ordinary shares in connection there with

Virgin Galactic makes no mention of using the trust account to fund business operations. And with only $ , in its operating bank account, Virgin Galactic will almost certainly need to rely on dilution to generate capital for the foreseeable future – especially if management pushes back the timeline for EBITDA profitability.

Investors Should Be Cautious About Virgin Galactic Stock

While Virgin Galactic is an exciting company, investors should be on high alert ahead of its Feb. 48 earnings report .

Hopefully, management will share insight on when they expect commercial operations to start and whether or not the prior revenue projections still stand. The public needs more insight into Virgin Galactic’s liquidity situation and plans for raising capital going forward.

Until then, there are too many holes in the story.

If management walks back its earlier forecasts or announces plans for massive dilution, investors should expect Virgin Galactic’s stock price to crash back to earth.

Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. .

This article was edited by Josiah Wilmoth .

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Last modified: February

. , 4: PM UTC

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