It was just over 50 years ago that Neil Armstrong became the first man to walk on the moon, the culmination of a nearly decade-long NASA program—and now we have three major commercial entities making continued progress in the field of space travel.
Jeff Bezos’ Blue Origin has been taking commercial payloads into space using a reusable rocket that returns to land.
Elon Musk’s SpaceX is working for NASA (among others), carrying payloads and soon astronauts into space (taking the business away from Russia) and also reusing rockets. Additionally, SpaceX has been building a new satellite-based broadband network dubbed Starlink, composed of satellites in low-earth orbit linked to ground transceivers. The company is aiming for 800 satellites to provide moderate coverage, and has already launched 422, so the service may debut by the end of this year.
And then there’s Sir Richard Branson, whose Virgin Galactic (SPCE) is aiming to take paying tourists—including Branson on the first flight—into space (perhaps later this year) and then parlay the experience gained in that venture into a hypersonic point-to-point travel service that could provide a flight from New York to London in one hour and Los Angeles to Sydney in 2.5 hours.
You can’t invest in SpaceX or Blue Origin yet, but you can invest in Virgin Galactic, so that’s the company it makes sense to watch—especially if you, like me, like investing in big, revolutionary ideas.
SPCE: The Final Frontier
Virgin Galactic’s space tourism trips are expected to take around 90 minutes and cost $250,000 per person—making them perhaps the most expensive thrill on Earth. (What else costs nearly $3,000 a minute?) But there are plenty of interested parties! The company already has over 600 reservations. As for the hypersonic intercontinental transportation market, that’s the larger opportunity, and it could eventually revolutionize the multi-trillion-dollar airline market, which is in deep trouble today thanks to the coronavirus.
The amount of investment required is massive, but I like management’s strategy because it reminds me of Elon Musk’s strategy with Tesla (TSLA): first, build a small number of expensive cars (Roadsters) for rich people, then use the profits from that to build a larger number of luxury cars (Model S and Model X) for a larger segment of the population, and then use the profits from that to build cars for the mass market—the Model 3!
Management believes Virgin Galactic’s space tourism business could grow to 270 flights by the end of 2023, assuming five aircrafts make 54 flights a year. In this scenario revenue could top $500 million in three years. The company generated $4 million in revenue in 2019 from transporting scientific payloads, lost $211 million and ended the year with $480 million in cash. Consensus estimates assume zero revenue in 2020, then $110 million in 2021.
There are plenty of risks. One in-flight explosion would be a major problem; two or more could be devastating.
But the long-term potential is enormous, which is why SPCE is one of the stocks that I’ve recommended to my readers in Cabot Stock of the Week.
But I wasn’t the first Cabot analyst to recommend Virgin Galactic stock. That was Carl Delfeld, chief analyst of Cabot Global Stocks Explorer, who recommended the stock to his readers in December when it was trading under 7.5. Looking at the chart, you can see he pretty much caught the low!
I recommended SPCE stock to my Cabot Stock of the Week readers a few days later, just as it was taking off (most of them bought around 9), and then it was off to the races, with the stock soaring to a peak of 42! Along the way, both Carl and I recommended some profit-taking, but both Carl and I continue to hold SPCE for the long-term, because of the world-changing potential of the business.