Back in early July we commenced 'Pro' service coverage of Virgin Galactic (SPCE). We declared the stock a Buy. We said the market had not really recognized the degree to which serious people were doing serious work at the company. We thought the stock could outperform. Well, so far, it has. In a hot hot market, SPCE has outpaced the Nasdaq and the S&P alike since our Pro 'Buy' call. We walk you through this below and we consider whether taking profits now is wise or not.
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Market Hot, SPCE Hotter
Our 2 July Pro note on Virgin Galactic (SPCE) highlighted the stock's potential to reward two types of investor. We noted that space tourism was likely to be a growing category over a multi-year period and that SPCE would likely be a winner in that category. On a long-term buy and hold basis we felt that market growth coupled with the deep bench of expertise at the company would deliver solid returns. We further noted that the volatility of the stock provided the opportunity for short-term trades over and above long-term hold investments.
The story hasn't changed for us. Here's how the stock has performed since our Pro 'Buy' call - we compare it to the Nasdaq and the S&P500 in the form of their proxy ETFs (QQQ and SPY) - and we use a total return basis, which is to say inclusive of dividends.
Up 32% vs. 13% for the Nasdaq and +11% for the S&P. So far as a long term hold play that is working out well.
You can see the volatility in the stock too. After a very quick runup following our note, the stock spent some time in the doldrums following the company's announcement of an equity raise. Recently the stock has shaken off that malaise and recommenced a move upwards. This volatility offers many opportunities to trade the stock long and short.
If you're a short term holder, ought you to take profits? Let's consider the stock chart once more.
Source: TradingView, Cestrian Analysis
As a long-term play we see no change to the Virgin Galactic story and we would not look to cash in gains on that basis. As a short-term trade however - the stock is sat right around two key resistance levels; the middle parallel of the upward-sloping channel you see above, and an absolute level of around $21.50. Both these lines of resistance have proven effective in the last twelve months. The stock has broken out beyond $21.50 on two occasions, both brief (including one, that large spike you see, which was a pure hype-driven moment). The middle parallel? Less strong resistance than the $21.50 line. But if locking in short-term 32% gains - an IRR of 176% - is appealing, then we think now is a justifiable time to do so. Generally speaking the stock can be relied upon to present more short-term opportunities. Continuing to hold a long-term stake does of course protect against another publicity-driven spike up in the price, should you choose to bank those short-term gains now.
So - a nice win to date for our Pro service. If you're not yet a Cestrian Pro subscriber, you can learn more about our Pro service here.
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Cestrian Capital Research, Inc - 9 October 2020.