Virgin Galactic's (SPCE  ) stock is more than 200% higher in 2020. Compare this to Tesla's relatively muted 120% gain this year. Until the past couple of weeks, Tesla (TSLA  ) had been the defining stock of the past couple of months. However, it's now been displaced by the even more hype-filled and extreme move in Virgin Galactic.

SPCE vs TSLA

It is a much more speculative issue given that the company barely has any revenue, and it's an open question as to whether or not the company will actually achieve its mission of making commercial space travel accessible and affordable. In contrast, Tesla is certainly expensive by any traditional valuation metrics, but it actually has a product and conceivable path to realizing its valuation if it remains dominant in electric cars, and electric cars grow to be a larger segment of the market. Further, Tesla has an early-mover advantage in solar, battery storage, and self-driving vehicles. All of these are transformative technologies with a total market size in the trillions.

Virgin Galactic's stock move is more of a reflection of the bullish market environment than any fundamental development in the company's business. Although the gain has been impressive, it should be a warning sign for more serious-minded investors as it contains all the hallmarks of excess bullishness which ends in tears. Due to its gains, the stock is the most popular issue among retail trader and on public "tout" boards like Reddit's Wall Street Bets. It's also a signal that the market is reaching levels of speculative frenzy last seen in the dotcom bubble.

Be Cautious

While these developments can exacerbate momentum moves, positive long-term returns are negatively correlated to buying stocks following massive gains fueled by retail traders. Historically, this is a good time to sell not to buy stocks. Further, the stock's valuation has passed the "common sense" test by many measures. It has merely $13 million in revenue and a market cap of nearly $5 billion. It will be many years, possibly even decades, before commercial space travel becomes possible due to the number of technological, legal, and regulatory hurdles.

Currently, investors are not respecting the riskiness of this endeavor and the difficulty of success. Instead, they are enamored by the stock's short-term price gains. One interpretation of a bubble is when buyers are more concerned with flipping a stock for a short-term gain rather than the company's fundamentals. This is clearly taking place in Virgin Galactic based on the stock's volume and turnover.