Why Space Stocks Crashed to Earth Today

The Motley Fool
The Motley Fool

What happened

On yet another miserable day for stock markets , shares of rocket stocks are braking hard. As of 1:15 p.m. ET, small rocket-makers Rocket Lab USA (NASDAQ: RKLB) and Astra Space (NASDAQ: ASTR) are down 6.4% apiece, while Earth observation satellite company Planet Labs (NYSE: PL) shows a 6.5% loss.

On a relatively brighter note, space tourism company Virgin Galactic Holdings (NYSE: SPCE) , which has lost 38% of its stock market value since the new year began, is down "only" 3.4% today.

Image source: Getty Images.

So what

Why are all of these space stocks down today? The truth is that today's sell-off in space stocks doesn't appear to have any single good reason. No analysts have downgraded the space sector today for example, nor even tweaked price targets lower. There's no bad news of any other sort, either. Indeed, what seemed to be potentially bad news for Virgin Galactic last week, when smoke was sighted above a location where Virgin Galactic is known to test its spaceplanes, turned out to be a false alarm .

(It was in fact another space company entirely -- ABL Space Systems -- that suffered an engine failure out there).

You could even argue that bad news for ABL Space, which isn't yet a publicly traded company, is good news for companies like Astra and Rocket Lab -- which are publicly traded, because it emphasizes their success in getting rockets into orbit where myriad competitors have not yet succeeded.

Now what

So no bad news today . What about tomorrow? As it turns out, there's little likelihood of bad news for at least another month, because none of the four space companies named above is expected to report earnings until late February, or even March. That means that today's sell-off isn't tied to any bad news leaking out ahead of earnings.

No, when you get right down to it, I think the most likely reason that space stocks are selling off today is because one, everything is selling off (i.e., these stocks got stuck in the middle of a market correction ) and two, these particular stocks are all so new to the public markets (each of them, Virgin Galactic included, came public through the new special purpose acquisition company fad) that they currently lack the kind of earnings that would make them look increasingly cheap as their stock prices fall.

This, I fear, is going to be an ongoing risk to anyone who invests in any of Rocket Lab, Planet Labs, Astra Space, or Virgin Galactic. When investing in these literal moonshots before they have profits -- and before some of them even have revenue -- both volatility in stock prices and, occasionally, even brutal sell-offs are going to be inescapable.

While I won't advise selling them, I do think it's prudent to limit exposure to space stocks to just a very tiny portion of any investor's portfolio -- at least until we learn which, if any, of these stocks will survive their growth phase and eventually earn a profit.

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Rich Smith owns Planet Labs PBC and Rocket Lab USA, Inc. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .

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