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The Virgin Galactic share price has halved since July. Is it now a bargain?

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Aerial view of Planet Earth with clouds, horizon and little bit of space
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Over the past year, the Virgin Galactic (NYSE: SPCE) share price has been rather like the spaceship trajectory. Explosions higher followed by a return to earth. With a current price just below $20, I’d be flat if I’d bought the shares a year ago. Yet if I’d bought back in the summer, I’d be down around 50%. So what’s the story here?

Things were looking good

I last wrote about the company back in June. At that time, the Virgin Galactic share price had jumped 50% in the previous month. The company was flying (quite literally), thanks to another successful test flight. The following month, the company successfully completed the first fully crewed spaceflight. 

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There was also optimism regarding the commercial side of operations. The business has been loss-making in recent years due to the high research and development costs. For example, it lost $210m in 2019, followed by $273m in 2020. Yet as the company moved closer to being able to launch the service to paying customers, deposits were finally coming in the door. 

Given that a seat is currently being priced at $450,000, it won’t take many sales to start recouping the firm’s large spend. In the latest results for Q3, 700 of the first 1,000 seats had been reserved.

Reasons for the drop

Given that momentum regarding flights and revenue is picking up, the slump in the Virgin Galactic share price since the summer could be surprising. However, there are a few issues I put it down to.

First, the company is by no means the only one in this area. Blue Origin and SpaceX are other prominent players that are vying to take the top spot. In my opinion, SpaceX is leading the way, due to a link with NASA. Earlier this week, the company launched several NASA astronauts into space.

Second, I didn’t think the latest results were all that positive. Adjusted EBITDA for the quarter was a loss of $68m compared to $66m from the same quarter last year. Despite revenue coming through the door, expenses are still high (and higher than this time last year).

Finally, could it be that the market got over-excited back in the summer? The Virgin Galactic share price shot higher, at one point giving it a market cap around $14bn. For a company that was loss-making, this premium attached to the outlook was quite steep. 

Unsure about the Virgin Galactic share price

Investing in stocks that are making losses isn’t always a bad idea. For example, Tesla was making large losses before becoming profitable recently, but the share price was still heading higher during this period.

So I think it really comes down to what future value I assign to Virgin Galactic. If I believe that commercial space aviation is going to be profitable years down the line, then the fall in the Virgin Galactic share price could make it a bargain.

However, I think there are going to be further bumps in the road. Therefore, I’ll be steering clear of investing in it right now.

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Jon Smith and The Motley Fool UK have no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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