Why Planet Labs Stock Popped on Tuesday

On a flat to down day for the stock market, space company Planet Labs (NYSE: PL) broke away from the pack and scored gains Tuesday afternoon, after updating investors on the latest refresh of its fleet of Earth observation satellites.

As of 3 p.m. ET, Planet Labs stock is up 3.8%.

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What Planet Labs said

With approximately 200 medium-resolution Dove and high-resolution SkySat satellites orbiting Earth, Planet Labs already boasts one of the world's largest satellite constellations -- and easily the largest of any publicly traded company. (SpaceX being, for the time being, still a private company.)

This morning, Planet Labs announced it will refresh its constellation by launching 36 new SuperDove satellites, plus a new Pelican-2 high-resolution satellite, aboard a SpaceX Falcon 9 "Transporter" rocket, which launched earlier today.

Does this make Planet Labs stock a buy?

Now, you might think that this is very good news for Planet Labs. Adding 36 SuperDoves and a Pelican to a constellation that already numbers roughly 200 satellites sounds like Planet Labs is growing the size of its satellite fleet by almost 20% in one fell swoop.

That's not what's happening. Fact is, Planet Labs believes that 200 satellites is already just about the right number for its constellation size. So what's really happening here is simply the next refresh in a continual series of refreshes of the constellation. Older Doves will be cycled out of service, and directed to burn up in Earth's atmosphere, to be replaced by the newer, better SuperDoves as they arrive.

On the one hand, that's good news for Planet Labs, because every time its old satellites drop out of service, it can replace them with newer, better satellites, thus continually upgrading its capabilities. On the other hand, investors need to be aware that this constant cycle of improvements means Planet Labs is also constantly spending on capital expenditures (capex) -- roughly $40 million per year.

Until Planet Labs reaches a point where it's generating enough operating cashflow to offset this capex, it will remain a cash-burning company. For now, Planet Labs stock remains free-cash-flow negative.

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Rich Smith has positions in Planet Labs Pbc. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.