Why BlackSky Technology Stock Just Crashed

Key Points

• BlackSky got a big price target hike from a Wall Street analyst two weeks ago, sending its share price soaring.

• Today, the company cashed in on that windfall, offering to issue up to $185 million in convertible debt.

• Investors don't like the news, but the new debt looks cheaper than the old.

• 10 stocks we like better than BlackSky Technology ›

Timing, they say, is everything.

Ten days ago, spy satellite company BlackSky Technology (NYSE: BKSY) rocketed higher on some kind words from H.C. Wainwright analyst Scott Buck, who predicted the stock -- worth less than $22 at the time -- would hit $28 within a year. The prediction became self-fulfilling as investors glommed onto BlackSky and bid its shares up to (and as of yesterday, past) $28.

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Then today happened.

Image source: Getty Images.

What happened to BlackSky today?

Today, BlackSky stock is crashing, down 20% through 12:40 p.m. ET, and for one reason: Hoping to cash in on its good fortune, BlackSky announced yesterday it would issue $125 million worth of convertible debt, and potentially as much as $143.8 million if there was enough demand. BlackSky will use $113.3 million of the cash raised to roll over old debt, and use the rest for "general corporate purposes."

Demand for the debt offering was strong, and today BlackSky upped the offering size to $160 million, and potentially $185 million.

Is BlackSky a sell?

Investors aren't thrilled with the news, maybe because BlackSky will be paying 8.25% interest on the new debt, maybe because they fear share dilution when the debt converts into stock. But I think they may be missing something here.

First, by my calculations, BlackSky was paying close to 11.5% on its old debt, so the new interest rate is actually better than the old. Second, BlackSky's new debt won't convert to equity until the share price rises to nearly $37 a share. The stock would need to climb another 60% for that to happen, and I imagine most investors would be happy if that happened.

All things considered, today's sell-off looks like an overreaction. And BlackSky's news sounds pretty good to me.

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