What happened
After tumbling more than 16% in December, shares of Virgin Galactic (SPCE -1.52%) continued their downward plunge in the first month of 2022. According to data provided by S&P Global Market Intelligence, Virgin Galactic's stock lost 31.2% in January -- a far worse performance than the S&P 500's 5% decline.
While market volatility shook the resolve of growth investors last month, bearish opinions emanating from Wall Street analysts provided another catalyst for this specific stock's descent, as did the company's announcement of a new debt offering.
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So what
The broad market's rocky mood, high inflation, and the prospect of higher interest rates undoubtedly played significant roles in Virgin Galactic's decline last month as investors exited positions in growth stocks in search of more defensive options. With tickets for its brief spaceflights carrying price tags of $450,000 apiece, Virgin Galactic is catering to an exclusive clientele. Evidently, investors looking at the macroeconomic conditions concluded that the company's growth may be in jeopardy as some of its potential customers may be more reluctant -- in these circumstances -- to pony up quite that much for a ride to the final frontier.
In addition, news that Virgin Galactic was turning to the debt markets to raise capital sent investors running for the exits. On Jan. 14, the company announced that it was offering $425 million in senior convertible notes due 2027. The news was unsurprising since the company is still in its pre-revenue phase, and it needs cash to keep the lights on. However, the prospect of further share dilution down the line seemed to be too much for some investors to handle.
Pessimism from Wall Street analysts provided further fodder for the bears. Austin Moeller of Canaccord Genuity cut his price target on the space stock to $36 from $44 while maintaining a buy rating. Some days later, Ronald Epstein, an analyst at Bank of America, espoused an even more pessimistic position, reducing his price target to $10 from $20 and keeping an underperform rating on the stock.
Now what
In the wake of the stock's sell-off, some investors may be taking a closer look at Virgin Galactic and its less-expensive price tag. Buying shares may seem reasonable since the stock price decline didn't reflect the company encountering any formidable obstacles. Growth investors considering opening a position will want to pay close attention to the company's expectation that it will begin commercial service in the fourth quarter of 2022.
