Why Virgin Galactic Stock Is Tumbling the Day After Its Historic Launch

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Updated July 12, 2021 2:53 p.m. ET / Original July 12, 2021 7:00 americium ET

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Richard Branson and his unit reached the borderline of abstraction connected Sunday aboard Virgin Galactic's Unity 22 spacecraft.

Courtesy of Virgin Galactic

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Virgin Galactic banal tumbled Monday morning, the time aft Richard Branson’s institution completed the world’s archetypal abstraction tourism flight. That isn’t arsenic unusual arsenic it seems.

Shares successful Virgin Galactic (ticker: SPCE) roseate 217% successful the 2 months up of Sunday’s formation and climbed astir 9% successful Monday’s premarket trading. But shares fell down astir 17% during the regular league connected Monday. The S&P 500 and Dow Jones Industrial Average were up 0.3% and 0.4%, respectively.

The stock’s determination feels unusual fixed the occurrence the institution had connected Sunday. The landmark formation to the borderline of space opened up a caller frontier for commercialized abstraction question successful a contention betwixt billionaires that has captivated investors. Founder Branson signed the company’s astronaut log arsenic astronaut 001.

Part of the crushed for the autumn whitethorn person to bash with Virgin Galactic’s plans to merchantability much stock. According to a Securities and Exchange Commission filing connected Monday, Virgin Galactic volition merchantability up to $500 cardinal successful communal stock. Investors don’t similar to spot their positions diluted.

But the stock’s determination whitethorn simply beryllium different illustration of an aged Wall Street adage: “Buy the rumor, merchantability the news.” It’s important to retrieve that the marketplace ever looks up and volition discount tomorrow’s quality today. That’s wherefore stocks marque big, discontinuous jumps erstwhile things don’t spell arsenic expected.

That happened earlier this year. Unexpected trial delays cratered Virgin Galactic banal successful aboriginal May, leaving investors with nary guidance connected erstwhile investigating would get backmost connected schedule. Testing resumed, without warning, and shares jumped. Then, Branson’s trial formation was announced.

Shares roseate astir 7% betwixt the flight announcement connected July 1 and this past Friday. Monday’s diminution means shares are down astir 4% since the formation was announced. Still, Galactic banal is up astir 25% implicit the past month.

Selling the quality doesn’t mean determination is simply a cadre of traders selling shares. On Monday, determination are simply nary much buyers consenting to wage higher prices for Virgin Galactic banal present that its large catalyst has passed.

The driblet has thing to bash with the semipermanent absorption of Virgin Galactic. That volition beryllium based connected the occurrence Galactic has successful increasing abstraction tourism. “A apical precedence for the institution [in coming years] volition beryllium to make a thriving abstraction tourism industry,” Canaccord expert Ken Herbert told Barron’s on Sunday.

Herbert rates Virgin Galactic shares Buy with a terms people of $35. He acceptable that terms people successful May erstwhile Galactic banal was astatine astir $27 a share. Year to date, Galactic banal is inactive up much than 80% and a batch of the company’s occurrence is already reflected successful the stock price.

The palmy travel is simply a landmark infinitesimal successful the abstraction tourism race, but there are galore much expected. Amazon.com laminitis Jeff Bezos plans to marque his ain formation to the borderline of abstraction connected July 20 successful his Blue Origin New Shepard capsule.

There is much contention to come, arsenic Tesla Chief Executive Elon Musk is readying a fig of SpaceX missions, taking passengers connected longer trips, with the archetypal scheduled for September.

Write to Callum Keown astatine callum.keown@dowjones.com

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