Risk/Reward Rating: Negative

Virgin Galactic Holdings is rallying 30% on news that the FAA has amended their license to allow commercial passengers in the future. This is not news to most observers as the entire premise of the company is based on this ability. If there were any fear of this not happening, the stock would have been trading at much lower levels prior to today as the company is burning money with no revenues and an extreme valuation.

Valuation: The company has a book value of $1.74 per share and is trading at 30x book value. Virgin Galactic generates $0 revenue and is not expected to be profitable for the foreseeable future.

Further dilution of shareholders appears to be on the way. The company filed a preliminary prospectus to sell $1 billion of securities in order to raise more money. This is a signal from the company that it will not generate positive cash flow for the foreseeable future and that it anticipates using up the existing net cash on hand of $533 million in the process.

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