Why Virgin Galactic's Reverse Stock Split Went Splat
Well, it seems I was too optimistic.
Writing up Virgin Galactic's (NYSE: SPCE) 1-for-20 reverse share split announcement last week, I explained that by gluing together 20 ordinary shares into a kind of "mega-share," the company would transform its apparent share price from $0.74 (Thursday) into a new share price of $14.80 (today).
Instead, Virgin Galactic's share price has plunged, and as of 11:50 a.m. ET Monday is down 17.2% at $11.34.
You can't blame it for trying
This was probably unavoidable. As I explained last week, and also two months prior, Virgin Galactic is a company in decline. Its sole operational spaceplane, Unity, has been retired, and the company can't fly space tourists, or make revenue from space tourism flights, until it builds a new Delta spaceplane currently in development. For the next couple of years, the only ways Virgin Galactic can conceivably pay for its ongoing operating expenses are by draining its cash reserves, taking on debt, or selling shares (and diluting its shareholders).
And most likely, by some combination of the above.
Is Virgin Galactic stock a sell?
None of these are attractive options. None of them will make Virgin Galactic look like an attractive investment. And this situation won't change for at least another couple of years, if and when Virgin gets its Delta spaceplane built and resumes space tourism flights.
Now, investors needn't lose all hope. The fact that Virgin Galactic has its reverse split out of the way and its stock price comfortably above $1 a share means it's no longer technically a penny stock, and no longer in immediate risk of delisting from the New York Stock Exchange. Virgin might also defy the odds, succeed in finding the money to keep itself afloat, and get Delta built in time to save its business.
The odds are against this happening, though. If I had to guess, I'd say it's more likely the stock will continue to fall, and sooner than you may think, Virgin Galactic stock will be at risk of delisting again.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Why Virgin Galactic's Reverse Stock Split Went Splat was originally published by The Motley Fool