Is the move in Virgin Galactic (NYSE:SPCE) ironic or what? Recently, this name exploded higher as the company’s craft took flight, but now SPCE stock is heading back down to Earth, just like the spacecraft. This begs a question: is the price move already over with or is it just beginning?
In my opinion, that’s more than just a question — it’s the centerpiece to the entire bull-bear debate here.
Bulls will argue that the long-term opportunity in this field is enormous. With Richard Branson flying into space on the company’s latest aircraft, Virgin is on the cusp of ushering in a new form of travel and experience. At the same, bears will argue that the company doesn’t generate any meaningful revenue. They’ll also say that a market capitalization between $7.5 billion to $10 billion (or even higher) is not warranted.
Can both be right?
SPCE Stock: Breaking Down Virgin Galactic
I have long said that Virgin Galactic doesn’t justify its valuation. It simply doesn’t. The company has yet to generate any real revenue and, based on that, we know it can’t operate at a profit. However, just because a company hasn’t generated profit doesn’t mean it’s not worth investing in.
Some of the largest companies in the world — like Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX) and Salesforce (NYSE:CRM) — operated at a loss for years. However, they did so while generating not only meaningful revenue, but impressive revenue growth.
That said, I have also been a big believer in Virgin Galactic as a worthy speculative play. And I still believe that, although the recent run in the stock price drastically alters the risk-reward here.
We’re seeing some of tech’s superstars now reaching for, well, the stars. Amazon’s Jeff Bezos and Tesla’s (NASDAQ:TSLA) Elon Musk both have space companies and many are looking beyond Earth for the next opportunity.
Traveling into space seems like a farfetched business idea for Virgin Galactic. However, the company is proving that the capabilities are here with its most recent flight. And more so, it has proven that there is demand for it, too.
For instance, one analyst thinks it could be a $38 billion per year industry by 2030. Obviously that’s just one analyst, but this is the kind of thing that could make SPCE stock a superb pick for long-term holders.
UBS analysts also say that “in a decade, high speed travel via outer space will represent an annual market of at least $20 billion and compete with long-distance airline flights.” High-speed travel — an endeavor that Virgin Galactic is working on with NASA — could be the next development in long-haul transportation. That’s just one more component to the company’s story.
Trading SPCE Stock
As Virgin Galactic raced into space, so did SPCE stock. However, shortly after the company’s space flight ended, the stock’s run did as well. Shares faded lower and were trading in a downward channel.
Soon, channel support gave way and the stock continued to move lower. Unfortunately, SPCE didn’t find moving average support until it hit the 200-day and 50-week moving averages. There’s also a weekly VWAP measure in there for an additional buoy.
So now what?
I like SPCE stock a lot more near $30 than at $50-plus. That said, it’s a volatile speculative stock. That means we need to ride this name when the technicals are working as a tailwind, not as a headwind.
For now, the stock is holding the low $30s as support, as it tries to reclaim the 50-day moving average and channel support. Back above this area puts the 10-day and 10-week moving averages in play, followed by a possible move back up to the $40s.
Keep an eye on Jul. 19’s low at $28.63. A close below that measure could put the key $24 level in play. Below that could usher in a series of gap-fills. When this stock is hot, it’s a fun one to ride. But when SPCE stock comes back to Earth, it’s also a tough one to stick with.
All in all, if you’re looking for a speculative holding, Virgin Galactic could be the one. Just be sure to keep the chart on your screen.
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On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.