Virgin Galactic is 'overdue' for a correction after surging 223% in a few months, Morgan Stanley says

• Virgin Galactic has been on a torrid rally that's sent the stock up 223% for the year through Wednesday's close.
• Shares jumped as much as 12% in early trading Thursday, the ninth straight day of gains.
• "A modest correction is overdue, and frankly, healthy in our opinion," Morgan Stanley analyst Adam Jonas wrote in a Thursday note.
• Morgan Stanley is bullish on the equity but has struggled to identify "significant thesis changing or accelerating events" since it initiated coverage in December, according to the note.
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Virgin Galactic has been rocketing higher - its stock is up 223% for the year through Wednesday's close, and traded up as much as 12% early Thursday, notching the ninth straight day of gains.

According to at least one Wall Street analyst, the space tourism company founded by Sir Richard Branson may be due for a downturn.

"A modest correction is overdue, and frankly, healthy in our opinion," Adam Jonas of Morgan Stanley said in a Thursday note. The recent pace of volume and volatility in Virgin Galactic's stock triggered by investor enthusiasm in the emerging space economy has taken the firm by surprise, according to the note.

Morgan Stanley sees optionality for Virgin Galactic's space tourism business and hypersonic opportunity, but it's struggled to identify "significant thesis changing or accelerating events" since it initiated coverage in December, according to the note. At Virgin Galactic's Wednesday closing price, which was under $40 per share, it was trading 70% above Morgan Stanley's $22 price target and had about 60% upside to the firm's $60 bull case, Jonas wrote.

Now might be a good time for Virgin Galactic to consider raising further capital, given the stock's recent torrid run, according to Jonas. While the company has the money it needs to launch its commercial space service, investors may as or encourage that management consider "adding to the coffers," according to the note.

A new influx of capital could help given "unpredictable market conditions and the wide range of commercial applications inherent in Phase 3 (hypersonic P2P) that could present themselves to the company earlier than originally anticipated," Jonas said. Tesla, the electric vehicle company run by Elon Musk, recently raised $2 billion in a new stock offering after its rapid share price gains this year.

Going forward, Morgan Stanley will watch Virgin Galactic's fiscal fourth quarter results, due on Tuesday, February 25. Further news around the company's reservation backlog, potential development contracts, potential strategic partnerships, and the first flight later this year are top of mind, Jonas wrote.