Shares of Virgin Galactic (NYSE: SPCE) fell 37.6% this week after the company completed a 1-for-20 reverse stock split this past weekend. But that didn’t help the stock regain its footing, and shares ended the week down 30.4%, according to data provided by S&P Global Market Intelligence.
A reverse stock split can’t save Virgin Galactic
The reverse stock split kept Virgin Galactic in line with the $1 minimum share price for the New York Stock Exchange. But it was hoped the move would also bring in more investors who might be interested in the stock trading closer to $10 than $0.50.
This was not the case, despite no real news from Virgin Galactic itself. The company is in a fairly quiet period as it builds the Delta-class spacecraft and completes ground and flight testing. But commercial operations aren’t expected to begin until at least mid-2026, so the company needs to significantly reduce its cash burn and cut as many costs as possible.
Every turn is too far
Investors won’t know much about Virgin Galactic’s upside until the company hits testing milestones and begins commercial operations. But with the long time horizon, it’s easy to see why investors are selling stocks now and moving out of stocks.
What is compelling is the financial potential with management projecting a flight almost every day and up to $3.6 million in revenue per flight with 75% contribution margins. If these commercial operations take off, the company has a lot of upside, but right now the upside is too far for most traders to pay attention, which is why Virgin Galactic’s enterprise value ($600 million) has fallen below cash ($867 million dollars at the end of the first quarter).
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Travis Hoium holds positions in Virgin Galactic. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Virgin Galactic’s Free Fall Continues was originally published by The Motley Fool
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