What happened

It almost makes you wonder: What's even the point of winning a billion-dollar government contract and seeing your stock price skyrocket because of it if your stock can't hold onto the gains?

Just a little over a week ago, satellite intelligence company BlackSky (BKSY 0.80%) featured prominently in a National Reconnaissance Office award of "billions of dollars" of contracts to provide commercial spy satellite imagery to the U.S. government. Rival space operators Planet Labs and Maxar Technologies also won awards, but BlackSky's contract alone was reported to be worth $1 billion over 10 years.

Yet on Friday, BlackSky stock was down by 9.9% as of 1:50 p.m. ET -- and over the past three days of trading, the stock has dropped by more than 20% from its recent high.

Red down arrow on a black backdrop of tickertape prices.

Image source: Getty Images.

So what

How does that make sense?

Well, consider first what the new contract means to BlackSky. Over the past 12 months, BlackSky reported revenues of just over $40 million. Therefore, a $1 billion contract spread over 10 years (i.e., $100 million per year) promises to grow its annual revenues by nearly 250%. That should justify a pretty enormous increase in the company's market capitalization.

But here's the thing: BlackSky did receive that enormous increase in market cap. From May 24, the day before the contract was announced, to May 31, BlackSky's market cap nearly tripled to $3.27 per share.

In short, BlackSky stock may be down 20% over the last three days -- but this happened only after the stock rocketed by 177%.

Now what

Result: BlackSky stock is currently worth about 120% more than it was worth before the company won that $1 billion National Reconnaissance Office contract. But where does the stock go from here?

Again, the math suggests an answer: If BlackSky was worth "X" when it was a $40-million-a-year company, then now that it's a $140-million-a-year-company, it should be worth 3.5 times X -- or roughly $4.13 per share. Long story short, if investors are rational, then BlackSky stock should soon stop falling. It should, in fact, go up by about another 59%.