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Virgin Galactic shares jumped almost 50% last month. Should I buy now?

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The story behind Virgin Galactic (NYSE:SPCE) has been well documented over the past decade. The origins of the company date back to 2004 and charismatic founder Richard Branson. He’s always pushed boundaries and planned to launch commercial spacecraft into the atmosphere as early as 2009. This timeline wasn’t met, but with Virgin Galactic shares shooting higher last month after new test flights, could this be the beginning of something special?

A long time coming

With companies like Virgin Galactic, I have to detach myself from letting my heart rule my head. This is in a similar way to deciding to invest in Aston Martin Lagonda. I love the company, but to me an investment in it doesn’t make sense. Virgin Galactic shares would have been in the same category when the company went public several years ago. The shares didn’t make large gains, and a lack of tangible success limited any potential upside for an investor.

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This changed as we moved into 2019, with good progress seen via a successful test flight in orbit. Last month, the third successful test flight was conducted. The spaceship reached an altitude of 89.2km before returning the two pilots to earth in New Mexico.

This successful project was the main reason for the jump in Virgin Galactic shares last month. The company is planning three more test flights before opening its doors to the public in 2022. With my hat on as a potential investor, this is the milestone that really matters. It’ll be the point to really commercialise this business and take it from more of a research and development cash-burning business into a profitable one.

Do Virgin Galactic shares warrant an investment?

I note that the company has taken in over $85m in deposits for seat reservations so far. Ultimately, this isn’t enough to compensate for large operating costs. In 2020, the business spent over $158m in research and development costs. This led to a net loss of $273m for the year, larger than the 2019 loss of $210m.

I understand that companies like this lose money yet should reach an inflection point and move into the green. I also like that Branson was a pioneer with this idea back in 2004. My main issue though is that as I sit in 2021, Virgin Galactic isn’t the only player in the market. 

Jeff Bezos with Blue Origin and Elon Musk with SpaceX are both further along the process than Virgin is. Given that the industry is high-risk already, I struggle to see further upside for Virgin Galactic shares. I think progress has been too slow, and competitors are getting ahead. This could be compounded as future customers go elsewhere, leading to Virgin struggling to recoup the millions spent in development costs as revenue falls.

I could be wrong, and indeed my heart wants me to invest in this project that I’ve read about for over a decade. If the timeline can be accelerated to commercialise flights, and if demand is higher than I’m forecasting, Virgin Galactic shares could be a good buy. But as we stand, I can’t justify investing.

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jonathansmith1 has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Virgin Galactic Holdings Inc. 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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