What happened
Virgin Galactic (NYSE: SPCE) stock had a pretty great day on Monday, shooting up 16% by the closing bell. Credit for that goes to Morgan Stanley, which yesterday initiated coverage of the space tourism stock with an overweight rating and a $22 price target.
Today, Virgin Galactic shares are up again -- rising 12.2% by 10:20 a.m. And I suspect credit for this spike in share price goes to the media, which reported on Morgan Stanley's rating.
Image source: Getty Images.
So what
Just a glance at news reports on the stock "initiation" will tell you why: Morgan Stanley urged investors to "buy the stock," said Barron's. Virgin Galactic "stock can jump 203%," reported Business Insider. Virgin Galactic "shares to triple," predicted CNBC. And who wouldn't want to buy a stock that's set to triple?
I mean, if Virgin Galactic stock is set to go up "203%" but gained "only" 16% yesterday, that means there's still another 187% to go, right?
Now what
Well, not so fast.
Yes, Morgan Stanley said that it thinks Virgin Galactic shares could triple en route to its target price of $22. But Morgan Stanley also called the company a "biotech-type" stock -- the kind that can produce amazing returns...or go to zero if disaster strikes in the form of a spaceship crash.
Moreover, it's crucial to understand that Morgan Stanley built its buy thesis on the theory that even if all goes well with its space tourism business, Virgin Galactic will eventually evolve into a provider of an entirely different service -- point-to-point hypersonic commercial air travel. That's a technology that could take a decade or more to develop, however, so even if Morgan Stanley is ultimately proven right about the company's long-term future, investors might have to wait a very long time to find that out.
In the meantime, expect Virgin Galactic shares to wobble wildly, because the future is uncertain, and -- so long as there's the risk of a potential spaceship crash -- Virgin Galactic's end is always near.
10 stocks we like better than Virgin Galactic Holdings Inc
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Virgin Galactic Holdings Inc wasn't one of them! That's right -- they think these 10 stocks are even better buys.
*Stock Advisor returns as of December 1, 2019
Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of Virgin Galactic Holdings Inc. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
