Trading Nation

Beware this ‘pure hype stock,’ trader says, after its 60% rally in one month

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Virgin Galactic is a 'pure hype stock,' so the valuation is crazy: Trader

Virgin Galactic has taken off in the past month.

Shares have rallied more than 60% since the beginning of November — adding another 6% on Tuesday after NASA awarded the company a contract for space flight and integration services.

Mark Tepper, president of Strategic Wealth Partners, isn't buying the move, though.

"It's a pure speculation, pure hype stock. It amazes me that this thing has a market cap of $7 billion and it's going to do less than $1 million in sales this year. The valuation is absolutely crazy," Tepper told CNBC's "Trading Nation" on Tuesday.

Virgin is expected to generate $966,000 in sales in fiscal 2020, according to FactSet. That topline number is expected to rise to $28 million in fiscal 2021 when commercial flights are expected to begin. However, Tepper is not confident the customer base is as large as investors anticipate.

"These flights are priced like somewhere in the $250,000 to $300,000 range there. My question is who can afford these? … What's the total addressable market? What I keep seeing from all the bulls is they're throwing in everyone that has a net worth of $5 million-plus and there's 2.4 million of those people globally. … I think the TAM is really only those people with a net worth of $10 million and above. So now the TAM goes from 2.4 million people down to 1 million. That changes everything," said Tepper.

Todd Gordon, founder of TradingAnalysis.com, says the high price could be justified.

"I understand the valuation is astronomical, pun intended. But this market seems to be awarding visionary CEOs really high valuations, and I think Virgin Galactic might also be getting a boost from [Tesla CEO Elon Musk's] success with SpaceX," Gordon said during the same "Trading Nation" segment.

Gordon believes there is more to Virgin Galactic than space tourism, such as in commerce and logistics, which is what he thinks the high valuation is based on.

Virgin Galactic is not expected to turn a yearly profit until fiscal 2023. Analysts anticipate a loss of $1.23 a share this year.

Disclosure: Gordon holds SPCE.

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