As the Virgin Galactic (SPCE) stock surges, beware of this key risk

Virgin Galactic (NYSE: SPCE) stock price joined other meme companies like AMC, Blackberry, and GameStop in a strong rally. It soared by over 9% on Monday and continued its comeback on Tuesday as it surged by over 12%. That rally pushed its market cap to over $430 million, which is sharply lower than its all-time high of over $10 billion.

Virgin Galactic, like MicroCloud Hologram, has surged because of the ongoing meme stock craze in the financial market after Roaring Kitty’s return to social media. Kitty was one of the most popular traders during the 2021’s meme stock craze. 

The meme stock craze happened at a time when Virgin Galactic is not doing well as its cash burn continued. The most recent financial results revealed that the company’s revenue came in at $2 million, a big increase from $0.4 million in the same period in 2023.

Virgin Galactic’s net loss stood at over $102 million, an improvement from Q4’s $104 million and the $159.4 million it made in Q1’23. The losses improved because of higher interest income because interest rates remains at the highest level in over two decades. It has also reduced its costs recently.

The free cash flow came in at minus $126 million while the company ended the quarter with $867 million. If this trend continues, it means that the company will need to raise cash either later this year or early 2025.

The company could also take advantage of the ongoing meme stock mania to raise fresh equity through its ATM program. This is notable since Richard Branson, its founder, has ruled out extending more money to the company.

Virgin Galactic is bracing for more risks as Boeing has sued it. Boeing alleges that the company has not paid $26.4 million for work related to the mothership aircraft. If it loses, it means that Virgin Galactic will need to spend more money from its balance sheet.

SPCE chart by TradingView

The daily chart reveals that the Virgin Galactic’s share price bottomed at $0.6981 in April and has been crawling back since then. It then went parabolic on Monday and Tuesday and is nearing the crucial resistance point at $1.37, its lowest swing on October 27th last year. 

Moving to that price means that it has formed a break and retest chart pattern, which is a continuation sign. Therefore, I suspect that it will continue soaring in the near term as FOMO sets in. 

However, in the long term, as we saw in the last meme stock season, it will likely resume the bearish trend and retest the support at $1. 

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