Virgin Galactic Is Vulnerable To Inevitable Regulatory Intervention

Stocks to sell

Virgin Galactic (NYSE:SPCE) stock has been on a wild ride, but its heydays might be fading.

spce stock Sir Richard Branson

Source: Brian Friedman / Shutterstock.com

More than four decades ago, the musical act The Buggles released a song called Video Killed The Radio Star.

A catchy little tune, the song carried a greater meaning (whether intentional or not) — for every innovation there is a disruption waiting to happen.

That might also be the case for Virgin Galactic. Those who banked on the volatility of SPCE stock should not assume the wild west will live indefinitely.

Over the trailing year, shares of the spaceflight exploration and technology firm have seen plenty of ups and downs, but there are two big peak-to-trough cycles that stand out.

First, you have the cataclysmic drop this year between Feb. 11 and March 13, when SPCE stock hemorrhaged 74% of market value. Second, the bounce back to $55.91 on June 25 collapsed recently as the company’s stock fell to $29.58 on July 23, a decline of 47%. Today it trades around $31.

Clearly, the ride in SPCE stock is not an easy one; you really have to have nerves of steel. Nevertheless, for those that can stomach it, the volatility only means that there are plenty of short-term trading opportunities to engage.

Indeed, any day trader will tell you that markets not moving is worse than red-ink sessions. At least with movement, you have a chance. With no movement, there’s no chance.

As I alluded to earlier, SPCE stock is the market’s version of the wild west. So, if you’re a quick-drawing gunslinger, you might want to take advantage of this circumstance now. Moving forward, the “rich” environment for Virgin Galactic may be no more.

Will Regulation Kill SPCE Stock?

Out of the angles I explored for SPCE stock, I’ve never really expounded upon the regulation argument. So I was grateful that Grace Kay of Business Insider brought it up. Finally, something about Virgin Galactic that we haven’t read about 800 times already!

Primarily, Kay explains that people aboard Virgin Galactic’s spaceflights are not really passengers but participants. In practical terms, they are passengers — if it quacks like a duck and walks like a duck, it must be a duck, am I right? But since these flights are not regulated, Virgin Galactic and its ilk take no responsibility if something goes wrong.

Interestingly, Kay writes that the “Federal Aviation Administration has the authority to regulate commercial travel to outer space through its Office of Commercial Space Transportation, but Congress has imposed a moratorium through 2023 on regulating the industry.”

Because of this moratorium on regulation, it gives spaceflight firms a chance to innovate. So long as these extraterrestrial journeys don’t impose a danger to innocent bystanders or become too threatening to “participants,” regulators might not step in after 2023.

More than likely, it’s a matter of when, not if. And that could be a drag on SPCE stock.

Fundamentally, one of the outputs of regulation is stabilization. As a McKinsey paper explained on the role of regulation in high finance, “Obviously, regulation is vitally important: it serves as a traffic officer in the crowded streets of the financial markets. When drafted and applied correctly, it can be an effective tool for creating financial stability and restoring and maintaining confidence in the financial markets.”

Let’s see, creating financial stability and restoring and maintaining confidence — those are great descriptors for boring-as-heck blue-chip dividend stocks but not so much swing-trade shares like SPCE.

Either Way, Regulation Is Coming

Whatever happens to SPCE stock because of regulation — personally, I think it’s a headwind — you can be almost certain that it’s coming. Therefore, Virgin Galactic stakeholders should at least be mindful of a future where big government is cracking down on these participatory excursions.

“No matter how competent the companies are, what can go wrong, will go wrong.” said Ram Jakhu, director of McGill’s Institute of Air and Space Law.  “I’m sure someday soon there will be an accident. Blue Origin’s rocket is essentially four people sitting on a bomb and accidents happen.”

Well, that’s a comforting thought. Fortunately, I’m not going to know what that feels like. Nevertheless, the government cannot just sit on the sidelines while our nation’s best and brightest — or at least the richest and most adventurous — paint the wild blue yonder with a sickening crimson.

Thus, simply on a moral basis, the government will regulate space travel — and possibly with a heavy hand. Therefore, enjoy your time trading SPCE stock because the ride, whether up or down, may not last.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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