Virgin Galactic stock price slides 11% after ticket pricing raises questions

Summary:

The Virgin Galactic stock price was hammered yesterday when the realisation kicked in that higher ticket prices may not mean higher profits.

The Virgin Galactic stock price was hammered yesterday when the realisation kicked in that higher ticket prices may not mean higher profits.

Virgin Galactic Holdings Inc (NYSE: SPCE) gave back most of last week’s gains yesterday, falling 11% to $31.33.

Following Thursday’s earnings, SPCE looked on track to break out to the upside. Initially, Investors welcomed the news that the space tourism company was restarting ticket sales, sending the stock 5.6% higher after-hours.

Furthermore, Virgin Galactic said they would be raising ticket prices, with an entry cost seat now starting at $450,000.

This was taken as a sign of increasing demand, considering the company’s current bookings were priced between $200,000 to $250,000. As a result, the stock finished the week up 14% at $33.37. Furthermore, the buying continued on Monday, when SPCE gained a further 5.5%, finishing at $35.54.

However, yesterday was a different story altogether, and the stock succumbed to heavy selling pressure. Subsequently, the resulting slide managed to undo much of last week’s positive price action.

But why did sentiment turn sharply lower? It seems the market is starting to question the need for a ticket price increase. What if the hike has less to do with rising demand and more to do with the company’s rising costs. Not to mention, even if there is an appetite for the higher-priced seats, that revenue will not hit for a long time yet.

So what happens to the Virgin Galactic stock price now?

SPCE technical analysis

The daily chart shows that yesterday, SPCE reversed below horizontal resistance at $34.30. As a result, the stock has fallen to the support of the 200-day moving average at $31.14.

Additionally, the 50-day at $30.54 adds to the significant support below the market.

It’s therefore essential that Virgin Galactic holds above $30.54 on a closing basis. If it doesn’t, the 19th of July low at $28.63 is the last safety net for the bulls. And if that gives way, the next support is not seen until $23.70, around 23% below the last traded price.

However, if SPCE sustains the moving averages and turns higher, the 50 DMA at $36.65 is a logical target. Following that, $43.00 looks achievable.

Although for now, the price is in limbo between the support and the resistance. Until one or the other gives way, it’s a coin toss about where the stock heads next. However, when a direction is forged, the result is likely to be volatile.