Why Space Stocks Are in a Funk Today

I won't sugarcoat this for you: Last week was a pretty depressing time to be a space investor.

In back-to-back developments Thursday, we learned first that an unmanned Nova-C lunar lander tried to touch down on the moon's South Pole. But it toppled over within a crater, fell on its side, and died a quiet death deprived of sunlight for its solar cells.

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A few hours later, the eighth flight test of the SpaceX Starship ended in a fireball when the second stage (now being called just the "Ship" by Elon Musk, head of Space X) lost control on ascent and self-destructed, once again showering the Caribbean in space debris.

Arguably worst of all, both these incidents seemed to be near-identical repeats of past space news. The last Nova-C lander also toppled over on landing. And the previous Starship test flight also ended in a fireball.

Investors aren't thrilled with the back-to-back failures and today are reevaluating precisely how risky space stocks might be for their portfolios. As of 11 a.m. ET on Monday:

• Rocket Lab USA (NASDAQ: RKLB) stock is down 7.5%.
• Planet Labs (NYSE: PL) is off 8.7%
• And AST SpaceMobile (NASDAQ: ASTS) is doing worst of all: down 9.3%

Wall Street remains bullish

Now, it's not all bad news. Rocket Lab actually got a bit of good news today when analysts at the investment bank Morgan Stanley raised their price target on the small rocket maker by more than 10%, to $20 a share, as TheFly.com reports.

Shares of Rocket Lab are down about 15% -- half of which happened just today -- since the company reported earnings 10 days ago and tweaked its timeline for the first launch of its new Neutron medium-lift vehicle from mid-2025 to the second half of the year.

Morgan Stanley correctly points out, though, that this seems no more than a relatively modest delay in the timeline, echoing comments from Rocket Lab CEO Peter Beck that any delay, if there even is one, will be "not very material."

Accordingly, Morgan Stanley's new price target implies that what went down is going to go right back up, gaining back 15% within the next 12 months.

Image source: Getty Images.

Space is hard, and space stocks are risky

I agree with Morgan Stanley that the delay Rocket Lab describes seems like nothing to worry about. Building rockets is hard, and getting them to fly right and not explode is even harder, as we saw with SpaceX last week.

What's more, even perfectly designed and perfectly flown rockets don't always fly on time. Customers may be late in getting their payloads ready for launch, issues with fuel lines and other ground support systems can cause last-minute scrubs, and the weather doesn't always cooperate.

If Neutron isn't launched in July (as was hoped), and ends up taking off in August, September, or even October, that's not going to be a big deal in the grand scheme of things.

What does worry me about a lot of space stocks, though, is that their share prices may not reflect the risks of more serious issues with these businesses.

Neither Rocket Lab, AST SpaceMobile, nor Planet Labs are profitable currently, for example. All three are burning cash. Of the three, Rocket Lab looks the closest to being a viable business, with Wall Street analysts forecasting positive free cash flow next year, once the cost of developing the Neutron winds down, and revenue it produces ramps up. And Rocket Lab's first profits under generally accepted accounting principles should arrive in 2027.

Analysts forecast both free cash flow and positive earnings for AST SpaceMobile in 2027 as well. But with the company still in start-up mode, with de minimis revenue, I wonder if they really have enough hard numbers to justify that prediction at present -- especially when you consider the company's massive cash requirements to finish building out and launching its satellite fleet.

Planet Labs stock, meanwhile, looks arguably riskiest of all, with no analysts willing to go on record and predict a date for the company to turn profitable. Despite all these concerns, the stock is up 80% over the past year, Rocket Lab stock has gained 320%, and AST stock is up nearly 1,000%.

The fact that investors are having second thoughts about valuation today, and doing a bit of selling of these three very big winners, seems reasonable to me.

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JPMorgan Chase is an advertising partner of Motley Fool Money. Rich Smith has positions in Rocket Lab USA. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool recommends Rocket Lab USA. The Motley Fool has a disclosure policy.