Virgin Galactic: The Next Speculative Bubble As Investors Aspire To Be Part Of The Future
As Virgin Galactic stock reaches new highs this week, we try to uncover what exactly drives stock as Virgin Galactic and Tesla to reach unrealistic new highs.
In an era when more people are in the markets then ever, it begs the questions of what stock will be the next to gain a huge speculative wave of investors. The rise of Robinhood investors is part of a larger trend that has taken part in the last 30 years. Markets are now more democratized than ever. The once guarded markets, where you could previously either only invest in certain complex financial instruments, through means of having a tremendous amount of money, or through a qualified broker has currently changed to only needing a smartphone. Anyone can now use their smartphone and download one of the hundred free trading apps, such as Robinhood, instant deposit any amount they like, and start trading fractional shares even if they can’t afford a Tesla or an Amazon stock. Although people try to analyze earnings and past performance to predict a stock price, at the end of the day a stock is always going to be worth what people who engage in the market think it’s worth; that means an entirely different thing when there are thousands of new and inexperienced people in the markets every day. This begs the question, with equities markets changing rapidly what trends are most important to follow in order to pick the next winner?
We believe in the idea of betting on exciting, innovative companies of the future, as people want to be apart off the next wave of innovative technology. For example, take Tesla, the stock at its largest 52 week high has traded at almost 500 percent return for the year and now has a market cap of just under 280 billion.
No means of traditional financial logic could have got you to this valuation, and by all the means the stock very well might be by definition of a speculative bubble but that does not mean that it is going to burst. In fact, after looking at this chart from RobinTrack, which tracks which stocks Robinhood account owners hold, it shows that the bubble got even bigger as more first time and non-traditional investors piled into the stock. And although Robinhood can’t account for all of the price increase we think it is emblematic of the larger trend, about the new way stocks and behavioral economics come together when attempting to understand today’s markets.
What stock creates something that makes you excited about the future?
This brings us to our next point, if financial logic can’t paint the full picture for you on which stock might pop to ungodly highs, what can? From our perspective, it’s using the idea of consumer psychology to understand what gets people excited and what they want to be apart of. The next stock that fits this bucket Virgin Galactic (Ticker:SPCE).
Virgin Galactic was started by eccentric entrepreneur and legend Sir Richard Branson. The company’s mission is to provide sub-orbital spaceflight for private individuals, aka space tourism. The idea is to use a rocket to send a tourist into space see the amazing sight that is Planet Earth, experience sub-zero gravity, and then head back down all for around $250,000. The company is claiming to make progress on their idea and has promised the first space flight as soon as next year. The company also has recently redone there C-suite by adding former Disney executive Michael Colglazier, who can focus on making the idea of going to space as exciting as possible if it wasn’t already. The brains behind the operation and former CEO, George Whitesides, was previously chief of staff at NASA and a fellow at the UK Royal Aeronautical Society. Although this company has yet to send anyone into space, reach profitability, or prove that space tourism is even a consumer demand, we believe this stock has every potential to be the next speculative bubble to rival growth such as Tesla.
The stock has already hit one speculative bubble as it went from around $17 dollars to a $42.49 52 week high after news of the company started to pick up coverage and people got excited about the idea of space travel. Even after the stock fell back to earth shortly after, the popularity of the stock is even more evidence of a future lift-off as holdings of the stock have increased almost two-fold since the Feb 19th high. This week alone the stock is up almost 25 percent, even as the company remains far from delivering their first customers to space travel.
Takeaway
The premise of investing and using a discounted cash flow model to predict and invest in stocks is slowly losing favorability. Now instead of using a DCF model to use cash flow today to predict what the stock will be trading at in 10 years, many people use a reverse DCF and predict what the stock will be making in 10 years and apply that to the stock price today. As more people enter the market, and therefore more speculation occurs, the age-old adage that a stock is not worth the true value, but what people are willing to think it’s worth will become increasingly true.
Whether you think we are right or wrong about Virgin Galactic being the next speculative bubble, one thing is for sure, the more accessible, exciting, and interesting a company is the more the higher the probability that the company could be the next Tesla.
Check out more of our content at our website below
Disclaimer: Gen Z Investment Club is not a registered investment, legal, or tax advisor or a broker/dealer. All investment/financial opinions expressed by Gen Z Investment Club are from personal research and experience of the owners of the site and are intended as entertainment material. Although best efforts are ensured that all information is accurate and up to date, occasionally unintended errors and misprints may occur. At the time of writing this article the authors currently held postion in Virgin Galactic.
