Short selling data is worth keeping an eye on. If a stock has a high level of short interest, it indicates that hedge funds expect it to fall.

In this report, we are going to look at the short interest data on Virgin Galactic Holdings Inc (SPCE:US). Virgin Galactic is an American spaceflight company that is developing commercial spacecraft. Its aim is to provide suborbital space flights to tourists and suborbital launches for space science missions. The company is listed on the New York Stock Exchange and currently has a market cap of $1.84 billion.

Virgin Galactic Holdings: Short Interest Data

Looking at the short interest data on Virgin Galactic Holdings, we see a couple of red flags. One is that there is a large number of shares on loan. At present, 83.92 million shares are on loan, representing roughly 47.03% of the free float. This tells us that many institutions are betting against the stock right now.

Another red flag is that the number of the shares on loan has been consistently rising recently. At the start of April, the number of shares on loan was 73.7 million while at the start of January, the number was 19.2 million. These figures indicate that the short sellers have been increasing their downside bets throughout 2022.

High Valuation

As for why the short sellers are targeting Virgin Galactic, it’s most likely related to the company’s valuation and lack of profitability.

This year, Wall Street expects the company to generate sales of just $1.6 million. That puts the forward-looking price-to-sales ratio at about 1,250. Even if we look at next year’s sales forecast of $37.3 million, the price-to-sales ratio is still very high at 54.

It’s worth noting that analysts at Wells Fargo recently began coverage of the stock with an ‘underweight’ rating and a $4 price target (nearly 50% below the current share price). "We believe SPCE's valuation is driven by retail investor interest, which could decline further if economic activity slows," wrote Wells Fargo’s analysts. The analysts also said that they were doubtful that the company will be able to develop its new Delta spacecraft and continue to fund operations without a further capital raise.

As for profitability, Virgin Galactic is not expected to generate profits any time soon. At present, Wall Street expects the group to post a net loss of $381 million this year and $312 million next year. In the current environment, companies with no profits are very much out of favor.

In light of the high level of short interest here, we think caution is warranted towards the stock right now.