Why Virgin Orbit stock soared on Thursday

What happened

Shares of pristine orbit (NASDAQ: VORB) climbed 3.9% in afternoon trading on the Nasdaq Thursday at 2:30 p.m. ET. Virgin Orbit, Sir Richard Branson’s latest Special Purpose Space Acquisition (SPAC) company, launches satellites into air orbit via rockets deployed from an airborne 747 jetliner.

So what

Virgin Orbit shares were in response to a NASA announcement yesterday naming Virgin Orbit one of 12 companies that will help it put small satellites into orbit in the coming years. Some of these companies, like other space stocks SPAC Astra space, are as small as Virgin Orbit; some are smaller, like start-up Phantom Space, and some are downright huge, like SpaceX and Boeing-and-Lockheed Martin joint venture — United Launch Services.

The NASA contract was drafted as an Indefinite Delivery, Indefinite Quantity (IDIQ) defense contract which does not actually guarantee Virgin Orbit any income. But with a cap value of $300 million and a five-year term, there’s a good chance Virgin Orbit will make at least some of the money on offer as NASA picks contractors to power its satellites. orbit over the next half-decade.

Image source: Getty Images.

Now what

Even if Virgin Orbit were to earn the full $300 million on offer (it won’t) and save all that money in a single year, Virgin Orbit’s $2.7 billion market cap would still value this startup. space up to nearly nine times revenue. – a rather expensive multiple. Investors shouldn’t buy Virgin Orbit just on the basis of this one NASA contract.

That being said, the fact that NASA has put Virgin Orbit on its shortlist is a positive sign for the stock and indicates a high level of trust the space agency places in this launch vendor. Over time, that confidence could translate into more contracts from other buyers, and more revenue, and possibly profits – helping Virgin Orbit grow in valuation one day.

This is at least the bullish thesis of this growth stock. I’m crossing my fingers that it works.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

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