With just over a month gone in 2021, several stocks have delivered investors phenomenal returns, for reasons that have little to do with fundamentals. Many of those posting unseemly gains have been names with high short interest. These companies have benefited from the coordinated acts of savvy retailers who collectively bought shares, sent them surging and set off a short squeeze.
One such company is Virgin Galactic (SPCE), whose share price has skyrocketed 140% since the turn of the year. But don’t get too excited, says Morgan Stanley analyst Adam Jonas, as he sees “very little company specific news” to merit the surge.
Unlike some other struggling names which have profited from the buying frenzy, SPCE actually offers a unique proposition, in the form of novel ideas – space tourism and the potential of hypersonic point-to-point human transport. Jonas does make the point that there is a $70 “bull case” price target for SPCE, but is contingent on many moving parts falling into place.
In addition to the short squeeze mania, the analyst says investors are possibly excited about the VSS Unity spaceplane’s upcoming test flights – planned to go ahead this month. Management has said they have identified the problem related to the rocket motor controller which caused the company to abort its December test flight.
However, the analyst says expectations should be tempered by a “slower ramp to commercial operations this year due to Covid and testing delays.” Considering the unprecedented nature of such a venture, there are other long-term issues to consider.
“We don’t believe demand for Virgin Galactic’s space travel experience will be a problem,” the analyst opined. “The bigger challenge will be scaling the technology from prototype to high-turnaround spaceships as well as building the supporting service/manufacturing footprint.”
Accordingly, Jonas downgraded SPCE from Overweight (i.e. Buy) to Equal-Weight (i.e. Hold). However, the analyst did bump the price target up to $30 from $24. Nevertheless, the implication for investors is a painful 48% drop from current levels. (To watch Jonas’ track record, click here)
So, that’s Morgan Stanley’s view, what does the rest of the Street make of SPCE’s prospects? With 2 Buys and 1 additional Hold, the stock has a Moderate Buy consensus rating. However, on where the share price is heading, a bleaker picture emerges; Shares will be changing hands at a 44% discount over the next 12 months, given the average price target currently stands at $32. (See SPCE stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
