Investing in Space

Forget Tesla. Wall Street has found a new favorite speculative stock as Virgin Galactic surges 23%

Key Points
  • Virgin Galactic's stock has more than tripled in the past three months, up 298% at the end of trading Wednesday.
  • Fidelity told CNBC that Virgin Galactic was bought more than any other stock on Tuesday — topping Apple, Tesla and others.
  • Virgin Galactic and Tesla have similarities that help explain why both are such popular speculative plays for investors.
VIDEO1:5601:56
Cramer on Virgin Galactic's speculative rally: 'These things tend to end badly'

Virgin Galactic's rally began two months ago but trading in the speculative space company has recently accelerated in a way that tops even the momentum behind Tesla.

Shares of Virgin Galactic shot up 23.3% in trading Wednesday to close at a new record high of $37.35, its highest ever finish and the stock's single best day of trading. This follows a 21% jump on Friday and 5% surge on Tuesday, daily trading spikes that resemble the speculative run in Tesla two weeks ago.

The stock has more than tripled in the past three months, up 298% at the end of trading Wednesday.

Daily trading volume in Virgin Galactic has been pushing higher for the past week. Before Tuesday, an average day of trading saw 12 million Virgin Galactic shares change hands. But investors flooding into the space tourism company are pushing that average higher. Virgin Galactic's trading volume hit 45.6 million shares on Friday, 104.1 million shares on Tuesday and 81.2 million shares on Wednesday.

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Virgin Galactic a perfect example of investors getting ahead of engineers: Analyst

Jon Najarian, co-founder of Market Rebellion and a CNBC contributor, put into context the increase in Virgin Galactic's trading volume. He first began trading Virgin Galactic in December, saying there were about 12,500 call options on the stock per day. Najarian said that spiked to 38,000 calls per day in January — and then, last week, Virgin Galactic traded 175,000 calls per day.

"That's bats--- crazy volume!" Najarian said.

Virgin Galactic has been trading publicly only for a few months. The stock debuted on the NYSE in late October, taken public through a merger with Chamath Palihapitiya's venture Social Capital Hedosophia.

Retail investors pouring in

CNBC's Jim Cramer warned that Virgin Galactic's rally "is what happens when too many people want a stock around the clock."

"It can't be stopped right now, and these things tend to end badly — but you try to tell someone that," Cramer said on CNBC's "Squawk Box."

Fintech company SoFi said Tuesday was "today by far the largest purchase day ever for the stock" on its platform, as it was also the most-traded stock on SoFi overall.

"Trading activity on [Virgin Galactic is] up 7x this year compared to 2019," SoFi told CNBC.

VIDEO2:4302:43
Virgin Galactic has become Wall Street's new favorite speculative stock

SoFi's Invest platform focuses on stocks and ETFs and is mostly used by millennials age 25 to 40.

TD Ameritrade said Virgin Galactic "was among the top names bought by retail investors" bought in January.

Likewise, Fidelity told CNBC that Virgin Galactic was bought more than any other stock on Tuesday — topping Apple, Tesla and others.

Although popular trading app Robinhood does not publicize its users' holding, Robintrack — an unofficial tool that scrapes data from Robinhood — ranks Virgin Galactic as by far the stock with the biggest increase in holdings among users. According to the tool, Virgin Galactic is now the 33rd most widely held stock among Robinhood users overall.

How Virgin Galactic compares to Tesla

Virgin Galactic's 162% jump since the beginning of the year tops Tesla's dazzling climb of 105%. But, beyond the resemblance in the stocks' gains, the companies also have similarities that help explain why both are such popular speculative plays for investors.

Both companies are bets on future technologies. Tesla is focused on electric vehicles and battery technologies, as well as the future of energy, while Virgin Galactic is developing a space tourism business that also hopes to develop hypersonic long-distance travel capabilities.

Both companies' stocks trade on what it will earn in the future, rather than what they earn now. Tesla has reported just two consecutive profitable quarters, with its latest bringing in $7 billion in revenue, while Virgin Galactic in the third quarter reported just $800,000 in revenue generated by flying scientific research payloads and providing other services. Overall, Virgin Galactic recorded a net loss of $138.1 million for the first nine months of 2019.

"Fundamentally, it's very difficult to value something that's generating zero revenues. You're supposed to look at projections 10 years from today. I don't know how anyone can accurately predict that far in advance," Strategic Wealth Partners' Mark Tepper told CNBC's "Trading Nation" on Tuesday.

Finally, both companies have billionaire backers in Elon Musk and Richard Branson, who each have histories of building companies.

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SpaceX wants to go New York to Shanghai in 40 minutes

The biggest difference between the two companies is likely in how Wall Street views each stock. Virgin Galactic is universally recommended by analysts but Tesla is widely disliked.

Virgin Galactic is scheduled to announced fourth-quarter results on Tuesday. The company is expected to provide updates to some closely watched metrics during its Q4 earnings call, like the demand for future space tourism customers.