The Virgin Galactic (NYSE: SPCE) stock price continued its remarkable sell-off this month as it crashed to its all-time low. It dropped to a low of $0.6850 on Friday, bringing the year-to-date losses to 72%. It has become a shell of its former self for a company that was once trading at $56 at a valuation of over $13 billion.
Faces more headwinds ahead
Virgin Galactic stock plummeted after the board voted to engineer a reverse stock split in a bid to maintain a listing at the New York Stock Exchange (NYSE). NYSE’s listing rules dictate that a company must trade above $1 for 30 days.
In most cases, companies trading for less than $1 do a reverse stock split that pushes its value substantially higher.
This stock split comes at a time when Virgin Galactic is facing a mountain of challenges. It is competing against Elon Musk’s SpaceX and Jeff Bezos’ Blue Origin. These firms have unlimited access to capital because Bezos and Musk are the two richest people with a combined net worth of $419 billion. Richard Branson, while still a rich man, is worth about $3 billion.
Virgin Galactic was forced to slash workers in a bid to cut costs. Recently, it paused sending tourists to space until 2026 when its economic Delta spaceplanes will come online. Delta will be bigger than the current class, easier to turn around, and reuse between flights
The biggest challenge for SPCE is that it will continue to incinerate cash for the foreseeable future. Its annual net income has jumped from $215 million in 2019 to over $502 million in 2023. It has lost over $2.2 billion in the past five financial years and its trend will continue.
Fortunately, Virgin Galactic has a solid balance sheet, with over $765 million in cash and short-term investments. These funds will likely be enough to last for the rest of this year but I expect that it will need to raise more cash in 2024.
It will be difficult for Virgin Galactic to raise cash since Branson has ruled out continuing to fund the company. Also, its stock market cap has dropped to $281 million, making it difficult for the company to raise equity financing.
At the same time, it has substantial debt worth over $400 million. In a time of high interest rates, it will likely find it difficult to raise debt financing on friendly terms. All this means that there is a chance that the company will file for bankruptcy.
Virgin Galactic stock price analysis
The daily chart reveals that the SPCE share price has been in a strong bearish trend in the past few months. It has now crossed below the crucial support level at $0.700, its lowest swing on April 22nd. Falling below that level has invalidated the double-bottom chart pattern.
The stock has also plummeted below all moving averages while Relative Strength Index (RSI) has moved below the neutral point at 50. Therefore, the stock will likely continue falling as sellers target the key support level to watch will be at $0.50.
Still, it is risky to short Virgin Galactic shares since it is a popular meme stock that could be ripe for a short squeeze.
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