Financial Trading Blog
Stock of the day 17/11/2014 – Virgin America
With airline shares at a high recently due to the plummeting prices of oil, Branson’s timing was savvy, and the shares grew 30% in price on its first day of trading on the NASDAQ.
The price set by the company of $23 immediately grew to $27 per share, ending Friday even higher at $30. The company sold 13.3 million shares on its first day, raising around $307 million, with the airline being valued at around $1.35 billion. This comes as Virgin America finally became profitable last year, with $1.4 billion in revenue yielding only $10.3 million in profit, after serving 6 million passengers in the same period, only 6% of the total ferried by Southwest Airlines.
When the NASDAQ opens later today, it will be interesting to see how the stock performs after its super-sized opening, and whether it can retain any of its growth levels, that were most likely exaggerated due to the excitement of first day trading. With the company only becoming profitable in 2013, it hasn’t got the proven track record of its competitors like Southwest and American Airlines. This view is supported by American finance newspaper Barron’s, which today claimed that Virgin America has reached its full value, and that ‘there appear to be better value elsewhere in the hot sector.’ One such example could be easyJet, who announce their full year 2014 earnings release tomorrow.
Obviously, any stock with the Virgin tag is going to draw interest from traders. And there is an interesting swirl of factors to consider for airline investors at the moment. Oil appears to have no stop loss at the moment in its dismal descent, and since oil accounts for 25% of airline operating costs, the current collapse of the commodity is a huge positive. However, the Ebola outbreak, which caused a drop for airlines in October, seems to have no end in sight, and is an ever-present threat to the world and the markets alike. Investors will be watching the developments of these issues carefully, as they portend some future movement in airline trading.
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