Virgin Galactic (SPCE): Should we bet for a huge price reduction in less than two weeks
at the time that I write this article the price of SPCE stocks are more than 58 USD. The volume of the trade is passing its average daily value of 15 Million and to me, it is a sign of abrupt changes.
On 13th February the company plans to test its space flight. any news in that regard makes a sudden change in the market price, in either positive or negative directions. This is the norm for stock prices in the days close to their critical Event days. The last space investment lovers and also professional gold diggers will join the market tomorrow. If there is no negative news, I anticipate the prices to rise up to 62 USD. but what happens on Monday?
There are two scenarios:
Scenario 1: the experiment is successful, and in this case, there would be a little bit more jump on the prices. Major players sell their shares at high prices and after that, a slight price reduction will be recorded.
Scenario 2: The experiment fails, which leads to an abrupt price fall.
So in both scenarios, I believe that in a period of maximum of couple of weeks, a decrease in price is anticipated.
What are the pieces of evidence that I rely on them to decide about my trade strategies?
- The experiment has no Significant direct results on this year’s revenue of the company:
It is not a COVID-19 vaccine, that has its market already and any progress leads to higher profit. The results, lead our cash flow to be positive in 2024. at the moment, the prices imply success in the experiment, hence, no significant jump will be observed after the success.
2. in contrast to the previous assumption, the fails have a huge negative impact on the company valuation and price in the market.
3. Comparables analysis, shows that the expectations on this price are surrealistic. EV/Rev for many of the comparable companies is in the range of 1–5. While these values for SPCE is more than 384. on the other side, the comparable companies have a P/BV of 1–4.5. while the same value is 17.35 for Virgin Galactic.
4. I use Price *Short Interest/Float as an Excellent sign to check the over anticipation in a stock. The value is the highest over the lifetime of SPCE.
5. Covid Vaccination, will reduce the profitability of the market. So in the mid-time, I believe that the price goes back to 50 channels in case of a positive result on the test, and around 35 in case of a disastrous experiment outcome.
At the moment, the price is around 59.54 and I open my short-sell position.
Feb, 12: Sooner than I anticipated the second case happened. A delay in the Space experiment of the company led to a sudden 8.2% reduction in the price. Higher trade volume, High volatility, and the high volume of transactions are the result of that.
Feb 15: One of the major shareholders, sold 3 million of the shares of the SPCE. I am anticipating the following pattern in the stocks.
A sudden increase in the price, because of the aftermarket trades, sudden price reduction, and then a series of the fluctuations will happen and I believe that we are going to reach the value of around 50- 52 USD per share. This means that the price will reach the range that it was before the announcement for the last failed experiments. It seems that if no news is released till 25th of February, which is the Annual Reporting day, the price will fluctuate in a small range, with low volume around the same price channel.
Feb 16: The market closed at the price of 50.4. this price is higher than the 44 USD, which the stock had before the declaration of the experiments. Other conditions like ARK support or being in the short Squeez list is not valid now. According to the previous performances, the highest reduction in price happens on the day after the cancelation of the experiment. So I believe that It is hard to believe that the company is far from reaching a positive test result. I believe that the price reduction period is done, and from 17th the price is going to recover gradually.
Today I opened a buy position on 50.
Feb 23: How the stimulants on the US market influence the SPCE price?
Update on previous Decision: I was a little optimistic about the price reductions. it seems that the market is interested to move the price toward the era that there was no press release about the spaceship test.
An increase in the stimulants leads to higher inflation and a possible change in the rate of the 10 Year yield of the US Treasury Bond.
The positive effect of COVID vaccination can lead to the return of the stock prices towards the Intrinsic values. I will stop any trading from 24th to 25th, and the time that we can check the annual reports of the company. In case, that the report is not optimistic, we should watch more decline in the price.
what is the most influential parameter? By default, we know that for sure, the time of the experiment and the time that Branson will have his travel to Space.
Feb 26: Huge depression on the market for the delay on the test, coincidence with the stimulus of US