Why Virgin Galactic Stock (SPCE) Fell the Day After Its Historic Launch
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Virgin Galactic stock tumbled Monday morning, the day after Richard Bransonâs company completed the worldâs first space tourism flight. That isnât as odd as it seems.
Shares in
Virgin Galactic
(ticker: SPCE) rose 217% in the two months ahead of Sundayâs flight and climbed about 9% in Mondayâs premarket trading. But shares fell 17.3% to $40.69 on Monday. The
S&P 500
and
Dow Jones Industrial Average
closed at records, each up more than 0.3%.
The stockâs move feels odd given the success the company had on Sunday. The landmark flight to the edge of space opened up a new frontier for commercial space travel in a race between billionaires that has captivated investors. Founder Branson signed the companyâs astronaut log as astronaut 001.
Part of the reason for the fall may have to do with Virgin Galacticâs plans to sell more stock. According to a Securities and Exchange Commission filing on Monday, Virgin Galactic will sell up to $500 million in common stock. Investors donât like to see their positions diluted.
But the stockâs move may simply be another example of an old Wall Street adage: âBuy the rumor, sell the news.â Itâs important to remember that the market always looks ahead and will discount tomorrowâs news today. Thatâs why stocks make big, discontinuous jumps when things donât go as expected.
That happened earlier this year. Unexpected test delays cratered Virgin Galactic stock in early May, leaving investors with no guidance on when testing would get back on schedule. Testing resumed, without warning, and shares jumped. Then, Bransonâs test flight was announced.
Shares rose about 7% between the flight announcement on July 1 and this past Friday. Mondayâs decline means shares are down about 4% since the flight was announced. Still, Galactic stock is up about 25% over the past month.
Selling the news doesnât mean there is a cadre of traders selling shares. On Monday, there are simply no more buyers willing to pay higher prices for Virgin Galactic stock now that its big catalyst has passed.
The drop has nothing to do with the long-term direction of Virgin Galactic. That will be based on the success Galactic has in growing space tourism. âA top priority for the company [in coming years] will be to create a thriving space tourism industry,â Canaccord analyst Ken Herbert told Barronâs on Sunday.
Herbert rates Virgin Galactic shares Buy with a price target of $35. He set that price target in May when Galactic stock was at about $27 a share. Year to date, Galactic stock is still up more than 80% and a lot of the companyâs success is already reflected in the share price.
The successful trip is a landmark moment in the space tourism race, but there are many more expected.
Amazon.com
founder
Jeff Bezos
plans to make his own flight to the edge of space on July 20 in his Blue Origin New Shepard capsule.
There is more competition to come, as
Tesla
Chief Executive
Elon Musk
is planning a number of SpaceX missions, taking passengers on longer trips, with the first scheduled for September.
Write to Callum Keown at callum.keown@dowjones.com