Penny shares have the potential to make investors a lot of money in a very short space of time. But this can work both ways, of course, as a 5p share price can quickly become 2p.
With this in mind, I note Virgin Galactic (NYSE: SPCE) stock has been surging higher. It has gone from $2.37 (or about £1.76) in April to just under $4 today. That’s a 65% jump!
In the US, a business trading for a couple of dollars with a $98m market cap — like Virgin Galactic in April — would be classed as a penny share. But it hasn’t always been this way. Back in 2021, the space tourism company commanded a market cap above $10bn.
This means the stock has lost 99% of its valuation in just four years!
I think it’s worth asking why Virgin Galactic has marched higher recently, and whether its recovery might just be getting started.
Bold vision
Virgin Galactic has an ambitious mission to ferry thousands of paying customers to the edge of space.
It aims to do this by tethering a rocket to a mothership, which takes off just like any other plane. Once it’s high enough, the rocket is released and blasts off to space. After a few minutes of sightseeing and weightlessness, the tourists glide back down to earth.
Virgin Galactic has already successfully completed a few trips. In Q1 though, the firm reported revenue of just $500,000, compared to $2m the year before. And it made a net loss of $84m.
Analysts expect almost no revenue this year, as the company’s operations are on hold while it builds a new class of spaceship. Next summer, it plans to carry a research payload, before resuming commercial spaceflights in the autumn.
In January, it expects to re-start sales for paying customers. With tickets priced at approximately $600,000 per seat, the firm’s revenue could quickly jump higher.
Burning cash
Is the stock worth considering then? Unfortunately, it’s just far too speculative for me.
Virgin Galactic had $567m on the balance sheet at the end of March. At the current cash burn rate, it’ll be touch and go if it makes it to commercial lift-off, especially if there are manufacturing problems or delays with the new spaceship.
Of course, this isn’t to say the stock won’t go higher. There’s a lot of meme stock-type speculation around right now, so anything’s possible.
Another space-related stock
For investors wanting exposure to the growing global space economy, Filtronic (LSE: FTC) might be worth considering instead.
This is a small-cap UK firm that designs and makes amplifiers, transceivers, and filters for various markets, including telecommunications, aerospace, and defence.
The share price is up 100% year to date, driven by excitement around a game-changing contract it has in place with SpaceX. This is to supply amplifiers for its massive Starlink satellite network.
Investors should be aware that there’s customer concentration risk here, given the importance of SpaceX to the firm’s growth. So it was encouraging to see Filtronic recently bag a £13.4m contract to supply high-performance modules to a different customer (in the aerospace and defence sector).
The stock isn’t cheap at 33 times earnings. But looking ahead, Filtronic looks set to benefit further from Starlink’s strong growth and higher European defence spending.
