Stock in Virgin Galactic Holdings, Inc. (SPCE) rose roughly 22% on Monday. It hit its highest price in almost two years. It diverged from the falling trend in space sector stocks. This happened as investors awaited SpaceX's much-awaited initial public offering. S3 Partners reported that short sellers have already incurred an estimated $64 million in losses this year. This is due to the rapid increase in SPCE's value.
Short interest in SPCE now accounts for 23.2% of the total float, the highest since April 14. On Monday, the trading volume was an extraordinary 286.1 million shares, which is 12 times the typical daily volume of 23.9 million shares. Although some short sellers have closed out their positions, approximately 19.1 million shares are still held short.
Market reaction to the SpaceX event
Excitement about SpaceX's upcoming offering has led to a rise in space sector stocks. However, some of the sector's top performers have begun to fall. This is after investors reassess whether their valuations are reasonable. This is happening ahead of the big offering. Redwire (RDW) suffered the most significant loss of the day. It dropped nearly 16% after Jefferies reduced its recommendation from 'Buy' to 'Hold'. The firm cited minimal immediate gains after a 223% increase year to date.
Redwire's decline was mirrored across the space industry, with major players experiencing setbacks. Rocket Lab USA (RKLB) dropped 15%, and Intuitive Machines (LUNR) and BlackSky Technology (BKSY) each saw declines of 13%. Additional losses were recorded by Spire Global (SPIR), AST SpaceMobile (ASTS), and Firefly Aerospace (FLY), with each company's stock falling between 5% and 10%.
The potential SpaceX IPO
Speculation is growing that SpaceX is gearing up for one of the largest initial public offerings in Wall Street history. According to reports, the company may begin formal marketing for the IPO as soon as June. It could target raising as much as $75 billion. This would be at a $2 trillion valuation. According to SpaceX's IPO prospectus, the market for space services is estimated at $370 billion. Starlink's broadband and communications network opens a $1.6 trillion opportunity in global connectivity.
S3 Partners noted that SPCE experienced a significant increase in short interest during May, when the stock remained relatively stable. As favorable updates emerged and momentum traders became involved, short sellers were compelled to purchase shares to mitigate their positions, contributing to SPCE's upward momentum.
Even though some short positions have been closed, bearish sentiment about SPCE remains at an unusually high level, S3 Partners pointed out. The rate at which shares are borrowed is now at 88.5%, and the cost of borrowing has increased sharply to 9.12%. S3's proprietary Squeeze Score is currently at the maximum of 100 out of 100, signaling a highly favorable condition for a short squeeze.
Recent positive developments for Virgin Galactic
The recent rise in SPCE has been bolstered by a series of favorable developments for Virgin Galactic. On Friday, investor Rich Huang and RichRich Capital LLC disclosed a 5.26% stake in the company. They included a substantial options position covering more than 5.2 million additional shares. These are beyond the investor's direct holdings. The investment reflects growing optimism about the company's future.
The individuals in the shareholder derivative litigation denied all allegations of wrongdoing. Other contributing factors to the stock's performance include Jefferies' recent reaffirmation of its 'Buy' rating and Virgin Galactic's commitment to its fourth-quarter rocket-powered tests of its Delta-class spacecraft. The May 27 glide flight of the VSS Unity marked the company's first test flight in two years and is part of its broader preparation for upcoming missions, including glide and powered tests later this year.