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Why Planet Labs and Virgin Galactic Dropped Today — but Virgin Orbit Popped

What happened

Monday was a hard day to own space stocks, as investors in companies like Rocket Lab USA, Astra Space, Planet Labs (NYSE: PL), and Virgin Galactic (NYSE: SPCE) rejected growth stocks and sold off space stocks wholesale.

Tuesday, investors are being a bit more selective. On the one hand, shares of satellite operator Planet Labs and space tourism pioneer Virgin Galactic are both still in the red -- down 6.7% and 0.5%, respectively. On the other hand, Virgin Galactic's sister company, Virgin Orbit (NASDAQ: VORB), which launches satellites into orbit from rockets deployed mid-air from a converted 747 airliner, is doing just fine today.

Better than fine, in fact. As of 2:50 p.m. ET, Virgin Orbit stock is up 19%.

Image source: Getty Images.

So what

Is there a reason for this disconnect? Perhaps, but I'll be honest with you: Although there's news on Virgin Orbit today, and none on Planet Labs or Virgin Galactic, it's not at all clear why the news Virgin Orbit had to report is sparking a rally in the stock.

This morning, Virgin Orbit filed an S-1 registration statement with the SEC, informing of its desire to register 330.3 million shares of common stock for resale, including up to 14.4 million shares that may be sold upon the exercise of 6.8 million warrants to purchase those shares. (Those warrants also got registered today.)

Now what

Now, this was a long and complex filing -- well over 180 pages in length -- and it's possible there's something in there I'm missing. But the primary takeaway from the news still seems to be that roughly 98.6% of Virgin Galactic's 334.9 million shares outstanding are about to become freely tradable on the stock market. And once that happens, it's likely that the added liquidity of the stock -- the increase in the supply of shares available for trading -- when matched with constant demand, is going to depress the price of the stock.

At least, that's the way these things usually work.

Although it was certainly anticipated that these shares would begin trading sooner or later, the announcement that 330.3 million (or more) Virgin Orbit shares are about to be dumped on the market imminently seems a better reason for investors to be selling Virgin Orbit stock today, than buying it.

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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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