Planet Labs Stock Is Down 37% Over the Past Month. Here's What's Sending the Stock Lower.

It has been an exciting year for space stocks. Coming into June, Planet Labs (NYSE: PL) stock had surged to over $51 per share and was up an eye-opening 162% year to date. However, the stock recently pulled back 37% from its all-time high just over one month ago.

Planet Labs has been riding high on the wave of strong top-line growth and a surge in government spending on space and defense. However, the company's recent earnings forecast and equity raise have taken the air out of the balloon. Here's what investors need to know.

Planet Labs' stock has gone on a tear over the last year

Planet Labs operates a massive constellation of small satellites that capture daily high-resolution imagery of the planet. The company provides geospatial imagery, data archives, and analytics to intelligence, agricultural, and commercial customers for applications such as national security, crop yields, and deforestation monitoring.

The stock has soared over the last year, surging 432% as investors flock to booming space stocks. The company showcased solid top-line growth while teaming up with Nvidia to incorporate its GPUs into its satellites and deliver real-time AI insights to customers like never before. It is also riding a wave of contract wins, including awards with the U.S. National Geospatial-Intelligence Agency and the Swedish Armed Forces, and selection as a prime contractor under the Missile Defense Agency (MDA) SHIELD framework.

Planet Labs stock surged following its previous three earnings reports, but its first-quarter results (for the period ending April 30) sent the stock tumbling. Part of its decline was driven by margin compression and a high forecast for capital expenditure for the year. During the earnings call, Planet Labs guided its margin down from 56% in the first quarter to between 52% and 54% for the full year, with heavy capital investment totaling between $80 million and $95 million this year.

The biggest driver of the stock's decline was its $1.5 billion at-the-market equity offering, which was also announced during its earnings call. Planet Labs entered into an agreement to sell up to $1.5 billion of its Class A common stock through at-the-market offerings, meaning it could sell shares in smaller portions over time. The proceeds would be used to expand manufacturing capacity and further build out its Earth-imaging infrastructure.

Should you buy the dip in Planet Labs?

Planet Labs is growing nicely and expanding its reach with its growing satellite platform. However, the equity offering highlights the risks of investing in high-growth, early-stage companies, and the $1.5 billion raise is a massive amount for a company with a market capitalization of $11.7 billion.

The company is spending big in hopes of a larger payoff long-term, and analysts project its revenue could grow by 34% compounded over the next three years. That said, Planet Labs stock is far from cheap, priced at 31.2 times sales, and analysts covering the company don't foresee profitability until 2028 at the earliest.

Investors must balance growth with spending and recognize that Planet Labs is still an early-stage, rapidly growing company. If you do buy the stock, make sure it's part of a diversified portfolio and size your position accordingly.

Courtney Carlsen has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Planet Labs PBC. The Motley Fool has a disclosure policy.