1 Reason, The ONLY Reason, to Invest in Virgin Galactic (Right Now)

We were sitting in our small Broad Street office across the street from the NYSE. The latest dotcom story came on CNBC.

We had 5 employees in the hedge fund I was working for at the time, and like all trading rooms CNBC was required background noise.

The story, I think being told by Mark Haynes (I miss that guy) was about another dotcom founder bragging about his company’s burn rate.

In some absurd twist of financial psychology, during the dotcom boom the higher a company’s burn rate…meaning the faster they were spending money, and the more they were LOSING…the higher the stock went.

Company CEOs were literally coming on the air and trying to out duel each other on how quickly they could burn through investors money. I remember thinking at the time I was in Bizarro Land.

It was definitely a learning moment for a young trader. No matter what the fundamental analysis and value guys preached, investors ruled the market.

With their delusional psychology they could take over the market. They could destroy anyone who dared short, and send the modern day market straight back to the days of Tulip Mania.

It was scary stuff if you were sane and had to make a living trading stocks.

But, even in Bizzaro Land, valuation, and subsequently stock movement and direction, was based on underlying business activity.

We’ll spend as much money as possible to sell items at a loss to gain customers in order to sell more items to them at a loss. We don’t really care about ever achieving profitability, as long as we can IPO and cash out.

EVERY DOTCOM CEO

Not necessarily sane business valuation, but business valuation.

Virgin Galactic (SPCE, SPCEW) is a horse of a different color.

This is NOT a Valuation Play

It definitely isn’t the fundamental valuation play described in a recent Motley Fool article. It’s simplistic to say the company needs to “goose at least that revenue number higher”, in order to recover recent lost ground.

This my friends, is a flat out binary trade. An I’ll place all of my money on red trade. (Yes, my gambling aficionados, I know that isn’t quite a binary bet, but I’m making a point here…relax.)

Now, don’t get confused with the current trade and our last trade idea shown to premium subscribers. You can read about that one, but now we’re on to the next trade.

And the next trade is a winner take all commercial tourism space launch. (Make no mistake, I’m 100% cheering for a successful commercial launch with paying passengers.)

If Virgin Galactic is successful in it’s first commercial launch, the stock easily goes to $20, around a triple from here. (And, the warrant gets a bump of over 400%.)

If the launch fails, and by failure I mean Sir Richard Branson (who has promised to be on that first launch) is killed, along with all of the other first paying passengers, the company is done.

Successful first launch = win. Failed first launch = lose.

Forget valuations for the time being on this one. This isn’t some beaten down brick-and-mortar retailer that has just introduced a yet to be discovered by analysts killer digital offering.

Success is the ONLY Option

This is a…success equals a glorious view of space by a group of intrepid (and paying) passengers. And, failure is horrible, makes your stomach ache just watching it on TV, we’ll never recover from this.

I was watching when the Space Shuttle Challenger launched. And I still don’t like watching it on TV in some space history show.

The government will not be there to rescue a failed launch in this case. And, because Mr. Branson is himself going up in the first launch, neither will a master marketing CEO.

Make no mistake, if you are “investing” in Virgin Galactic right now, you’re not investing with the expectation they’ll show revenue at some point. You’re betting on the success of that first launch. Period.

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