While we are all excited about the developments at Virgin Galactic Holdings (NYSE:SPCE), investors need a good way to approach the company. Fundamentals are too early to be meaningful, and it is not certain that most large investors are investing out of a strict profit motive - some are in, partly for the prestige. Trading has also been quite volatile, and it is hard to establish a baseline for the company.
In order to get the pulse of Virgin Galactic, we are going to use a proxy tool and review what have insiders been doing in the last year, as well as what is the short term market sentiment on the company.
We will start by looking at what the insiders of Virgin Galactic were doing with their shares. While it is normal for companies and individuals that took the company public to want to cash out on a certain portion of their shares, it is good to keep track of the shares which founding members have left in the company.
The Last 12 Months Of Insider Transactions At Virgin Galactic Holdings
The Chairman of the Board, Chamath Palihapitiya, made the biggest insider sale in the last 12 months. That single transaction was for US$213m worth of shares at a price of US$37.89 each.
The last quarter saw substantial insider selling of Virgin Galactic Holdings shares. In total, Independent Director Craig Kreeger sold US$252k worth of shares in that time. This may suggest that some insiders think that the shares are not cheap.
The more important information, is that insiders in Virgin Galactic Holdings didn't buy any shares in the last year.
You can see a visual depiction of insider transactions (by companies and individuals) over the last 12 months, below. By clicking on the graph below, you can see the precise details of each insider transaction!
For those who like to find winning investments, this free list of growing companies with recent insider purchasing, could be just the ticket.
Does Virgin Galactic Holdings Boast High Insider Ownership?
As of the 12th August 2021, the Virgin Group Holdings limited (a privately held company) was the larges shareholder in Virgin Galactic with an 18% stake. Their last change was to sell some 18% of what they have previously owned.
The founding team of Virgin Galactic is a part of the private company and their large stake ensures that their interests are intertwined with those of shareholders, however when insiders pursue a complex/nested ownership structure instead of a straightforward one, it stands to reason that they are doing it to gain something like flexibility that they would not otherwise have as regular shareholders.
Gauging Market Sentiment
There is no clear way to measure what the market expects a company to do, but it is possible to get a proxy sense by looking at the activity from derivatives. These instruments turn profitable if the predictions that traders make on a stock come true. And since investors need to pay a premium in order to make a prediction, it shows us not only what traders think of a stock, but what they are willing to risk money on.
For our purposes, we will depict the market sentiment using the option chain with an expiry date on the 8th of October 2021. This is a highly active option chain, which will give us a better understanding of what traders are expecting to see in the near term.
From the chart above, we can see that traders are quite optimistic on the stock, and that the US$26 strike price point has more than 11,000 outstanding contracts. The general sentiment is overwhelmingly tilted towards calls (optimistic bets), and the average call strike is at US$27.88, at a 10.2% potential upside from the current price point.
Remember, that this is what option traders are hoping to see, but not necessarily what will happen. Do not mistake this graph for having causal predictive power. There are also pessimistic traders active on the chain, and the stock does not move by majority vote.
Virgin Galactic is a high-risk stock that has seen a good bit of insider selling over the last 12 months. The founding team has a strong position in their company, but it brings up questions as to why their stake is behind another entity. The problem with the private entity is that we are not privy to the ownership structure and can't really see who controls the company.
On the other side, the short term market sentiment seems to be quite positive, as indicated by the options chain ending on October the 8th. Derivative traders are paying premiums in the hopes that the stock will rise in the near future. This has no causal predictive power and does not mean that their predictions will materialize.
Unfortunately, this analysis yields no substantial takeaways for long term investors as the company is still defining how it sees itself in the future, and we will have to wait a bit more for solid fundamentals.
When we did our research, we found 5 warning signs for Virgin Galactic Holdings (1 is a bit concerning!) that we believe deserve your full attention.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies.
For the purposes of this article, insiders are those individuals who report their transactions to the relevant regulatory body. We currently account for open market transactions and private dispositions, but not derivative transactions.
Simply Wall St analyst Goran Damchevski and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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