• Virgin Galactic is now worth $6.7 billion, despite reporting just $3 million in revenue last year.
  • The space tourism stock is worth $1 billion more than Macys, which isnt sexy but is profitable.
  • This disparity exposes everything wrong with the stock market.

Think Teslas bewildering rally is the best evidence that the stock market is getting uncomfortably bubbly? Richard Bransons Virgin Galactic has a message for you: Hold my beer.
The space tourism stock (NYSE: SPCE) has surged roughly 200% since ringing in 2020, pushing its market cap to $6.7 billion on Wednesday afternoon.
Space Is Sexy Dividends Arent
As noted by Compound Capital Advisors founder and CEO Charlie Bilello, that makes Virgin Galactic more than $1 billion more valuable than department store chain Macys (NYSE: M).
Source: Twitter
Thats frankly ridiculous.
The iconic department store is more than 160 years old, with 130,000 employees and $25 billion in revenue.
Most importantly, it reported $1.1 billion in net income last year, currently offers an eye-watering forward dividend yield of 9.4%, and has a PE ratio of less than 5.25.
Thats not to say the stock hasnt fallen on tough times.
Brick-and-mortar retail isnt exactly a growth industry. Thats especially true for department stores like Macys, which long anchored foot traffic at now-vacant shopping malls.
Macys stock has had a terrible five years. But after a brutal decline, it offers an attractive PE ratio and dividend yield. | Source: Yahoo Finance
M shares currently trade 38% off their 52-week highs as the company implements a painful turnaround strategy that will require massive cuts.
It seems inevitable that Macys will have to cut its dividend, maybe even when it reports earnings next week. And just this week, S&P Global cut its credit score to junk grade status (BB+).
Its an understatement to say that Macys doesnt have great fundamentals. Its not sexy. But its cheap. And at least it has fundamentals.
What Virgin Galactic has is a charismatic figureheadand lots and lots of questions.
With virtually no revenue to speak of, investors are bidding up SPCE stock for one reason, and one reason only speculation.
Virgin Galactic Is a Microcosm of Everything Wrong with the Stock Market
This rally, even more than Teslas, encapsulates everything thats wrong with the stock market.
The S&P 500 keeps setting new record highs, but not because corporate profits are rising accordingly. In fact, just five stocks account for the indexs entire earnings growth. Investors are just greedily stomaching larger and larger PE ratios.
And its not as though economic forecasts vindicate those overextended valuations.
Source: Twitter
The stock market is priced for 3% growth, making investors even more optimistic than the Trump administration whose predictions have been far too bullish three years running.
And thats before you account for the downside risks from the coronavirus outbreak, which the stock market has all but ignored.
Like Virgin Galactics rally, that doesnt seem sustainable.
The only question is when the other shoe will drop.
Disclaimer: This article represents the authors opinion and should not be considered investment or trading advice from CCN.com.
This article was edited by Sam Bourgi.
Last modified: February 19, 2020 8:43 PM UTC