Why Space Stocks Virgin Galactic, BlackSky, and AST SpaceMobile Sank on Monday

What happened

Monday is looking like another rough day for investors in space stocks across the industry. Shares in recent high-flyers Virgin Galactic Holdings (SPCE 3.15%), BlackSky Technology (BKSY 0.80%), and AST SpaceMobile (ASTS 1.83%) are heading south.

As of noon ET, spy satellite operator BlackSky has lost 6.7% of its market capitalization, space tourism stock Virgin Galactic is down 3%, and AST SpaceMobile is off about 2.5%.

So what

Let's take these one at a time, beginning with BlackSky. In what appears to be a simple "sell the news" event, investors who bid up BlackSky in anticipation of the stock being added to the Russell 3000 index of small stocks are selling the company's stock, now that it's actually been added to the index (this morning). Similarly, AST SpaceMobile joined both the Russell 3000 and the Russell 2000 indexes today.      

In both cases, it makes sense that stock traders (if not necessarily investors), forewarned of the additions, might have tried to "front-run" mutual funds and exchange-traded funds (ETFs), which were required to buy shares in these two space stocks to properly reflect their constituents, before such funds and ETFs began buying. Now that the buying has (presumably) been accomplished and the profits reaped, such traders may see less opportunity for further upside and be selling the stocks today.

In contrast, Virgin Galactic stock may be suffering from a couple of different factors. On the one hand, TheFly.com reported over the weekend that investors are increasing their bearish bets against Sir Richard Branson's space company in the run-up to its highly anticipated first-ever revenue-generating space tourism flight.

Last week, Virgin Galactic had indicated the "window" for making this first flight would open on June 27 and remain open through June 30. This morning, however, Virgin Galactic announced that it's actually targeting a first flight attempt no sooner than June 29 -- cutting the flight window in half, and thus doubling the chances that Virgin Galactic will not, in fact, be able to make its flight this month.  

Now what

As a result, there's more substance to the selling going on at Virgin Galactic than at BlackSky and AST SpaceMobile -- especially when you consider that, in addition to the index news, BlackSky and AST have both made significant public announcements in recent days.

Earlier this month, BlackSky won a $30 million military contract that will grow its revenue stream by about 14% annually. Last week, AST announced it had successfully used a satellite to provide 4G download speeds to an ordinary off-the-shelf cellphone -- not a specialized satellite phone.

That being said, all three of these space stocks share the characteristic of currently being both unprofitable and free-cash-flow negative, as well as being at least a few years away from profitability. According to analysts polled by S&P Global Market Intelligence, 2025 will be the first year BlackSky and AST are likely to report profits, while Virgin Galactic -- despite having a market capitalization twice that of BlackSky and AST combined -- won't turn profitable before 2028, at the earliest.

All three of these companies remain speculative investments, at best. Until they reach a point where they can reasonably expect to begin reporting consistent and growing profits, they'll most likely have bad days, as well as good ones.