Oh, my! Wednesday does not appear to be a good day to be invested in unprofitable space stocks!
In early afternoon trading, 12:45 p.m. ET, shares of satellite telephony stock AST SpaceMobile(NASDAQ: ASTS) are off 6.5%, and space tourism pioneer Virgin Galactic(NYSE: SPCE) is down an even more dramatic 9.1%. Even small rocket manufacturer Rocket Lab (NASDAQ: RKLB) is seeing its shares sell off a modest 2.5% despite getting some pretty good news yesterday.
So, what exactly is going on here?
Rocket Lab should've rocketed
Let's ease into today's bad news by covering the good news first. On Monday, Rocket Lab announced it won a U.S. Space Force contract to launch an experimental "DISKSat" small satellite into very low earth orbit (VLEO) for $14.5 million -- roughly twice Rocket Lab's usual price for small satellite launches. Two days later, Rocket Lab confirmed it will reuse and refly -- for the first time -- a previously flown (Electron) rocket, a feat only SpaceX has ever accomplished.
Such a one-two combination of good news should have sent Rocket Lab stock flying higher today. So, why is it down -- and why are AST SpaceMobile and Virgin Galactic stocks down even more?
The answer, in a nutshell, is inflation and what it means for the prospect of Fed interest rate cuts in 2024. On Wednesday, the U.S. Bureau of Labor Statistics reported that inflation in March reaccelerated to 3.5% -- higher than expected. The thinking among investors is that this means the Federal Reserve will not cut interest rates this year, at least not cut as much or as often as investors had hoped.
Is it time to sell space stocks?
Investors had been counting on those rate cuts. They'd been hoping that lower rates would make it cheaper for unprofitable companies (and none of AST, Virgin Galactic, or Rocket Lab are anywhere near profitable) to take out loans to turn them over to profitability.
Now, don't panic. Even with higher rates, these companies can probably still get the loans they need. It's just going to cost them more money in interest payments...and take longer for them to earn profits. For the record, analysts polled by S&P Global Market Intelligence were hoping to see Rocket Lab earn its first profit in 2026 and for AST and Virgin Galactic to start making money in 2027.
Instead, it now looks like investors will need to sharpen their pencils and add on a few more quarters (or years) of these companies losing money before that can happen.
Should you invest $1,000 in Rocket Lab USA right now?
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Rich Smith has positions in Rocket Lab USA. The Motley Fool recommends Rocket Lab USA. The Motley Fool has a disclosure policy.
