Virgin Galactic (NYSE:SPCE) stock dropped after the company announced a 1-for-20 reverse stock split. This strategic move is intended to maintain its listing on the New York Stock Exchange (NYSE). The reverse split will take effect after markets close on June 14, with trading resuming on a split-adjusted basis on June 17.
Shares of the aerospace and space tourism company closed 5.5% lower on Wednesday, June 12. The downward trend continued into Thursday’s premarket session with an additional 8% drop.
The primary reason for the reverse stock split is to elevate the per-share market price of Virgin Galactic’s common stock. To avoid delisting, stocks must have an average closing price of over $1 per share for a 30-day period.
Here’s Why SPCE Stock is Trending Lower
SPCE stock has trended lower and is down about 65.3% year-to-date. Despite the company’s successful completion of multiple human spaceflights, which bode well for future growth, investor concerns about cash burn and profitability have significantly impacted its stock price.
The start of commercial flights is expected to boost Virgin Galactic’s revenue. Yet, the success of these commercial flights will largely depend on the development of its Delta Class spaceships. It’s worth noting that Virgin Galactic does not expect these spaceships to fly until 2026. This delay suggests the company might continue to face significant cash burns over the next two to three years. Additionally, uncertainties surrounding pricing and margins remain a concern for investors.
Looking ahead, Virgin Galactic projects its free cash flow to be negative $110 million to $120 million in the second quarter of 2024, indicating continued cash burn in the near term.
Is Virgin Galactic a Buy, Sell, or Hold?
Wall Street remains sidelined on Virgin Galactic stock. With one Buy, four Holds, and one Sell recommendation, SPCE stock has a Hold consensus rating. The analysts’ price target on SPCE stock is $1.84, implying 116.01% upside potential from current levels.
