Space stocks have taken a beating in 2023 as the Federal Reserve's interest rate hikes have made it more expensive for companies to borrow, hitting capital intensive industries particularly hard.

Virgin Galactic (SPCE), the space tourism company founded by billionaire Richard Branson, is down about 37% year to date while satellite imagery company Planet Labs (PL) is trading nearly 50% lower. Rocket launch services startup Astra Space (ASTR) is down 80% this year.

Companies in the space industry spend loads of cash on uncharted technologies. Even the industry's most dominant player, Elon Musk's privately held rocket and satellite company SpaceX, reportedly just eked out a profit in the first three months of the year after two years of losses.

“Higher interest rates are not helping any company in the space industry,” Andrew Chanin, founder of Procure Space ETF (UFO), said. The exchange traded fund has 35 holdings in international and domestic names including Virgin Galactic, Planet Labs, Rocket Lab (RKLB), and industrial giants like Boeing (BA) and Honeywell (HON). UFO is down 17% year to date.

Amid higher costs some firms are finding ways to tighten their belts for what could be turbulent times ahead.

Earlier this month Virgin Galactic stock soared 20% in one day after the company announced it would cut 18% of its workforce and shift focus to a new spacecraft expected to be more profitable.

Virgin Galactic’s CEO Michael Colglazier was optimistic during the company's latest earnings call that some of its largest expenses, such as engineering and factory infrastructure, are in the rear view mirror.

Colglazier said "the need for cash on hand is less than you may have seen from us in the past."

UFO’s Chanin points out Virgin Galactic may be able to weather a "higher for longer" interest rate environment better than others, given that its $450,000 flight tickets target customers with deep pockets.

“We have seen in the past that in difficult recessionary periods the ultra wealthy in many cases still have the ability to spend,” said Chanin.

Other industry players may not be so lucky. Earlier this year, satellite launch startup Virgin Orbit filed for Chapter 11 after failing to secure funding, laying off 85% of its workers.

This month, the founders of Astra Space offered to take the company private. The company laid off 25% of its workforce earlier this year amid declining cash reserves.

Astra went public in mid-2021 via merger with a special purpose acquisition company (SPAC). By mid-July of that year the stock was trading north of $200. Shares sat around $1.30 each as of Friday afternoon.

A dwindling stock price makes it hard to tap the public markets for cash.

Lower share prices though could create deal opportunities for private equity firms or bigger players in the space.

In May, satellite imaging and manufacturing company Maxar Technologies completed its $6.4 billion sale to private equity firm Advent International and minority investor British Columbia Investment Management Corporation.

Astra’s chief financial officer Alex Martinez said during a second quarter earnings call in August, “We also remain in active discussions with various capital market participants on debt, and equity financings to continue extending our financial runway.”

"To the extent that companies are able to find value at current market prices as they've become depressed, you know, that could potentially lead to, you know, an M&A wave of viable technologies and companies,” said Chanin.

That could include IPOs. Earlier this week, Bloomberg reported that SpaceX was weighing spinning off its satellite unit Starlink as early as 2024. Musk has denied the report, though he has said Starlink would go public when its cash flow became predictable. Just this month he announced breakeven cash flow.

Investors looking to play in the space industry can also opt for diversified companies, including defense and aerospace giants like Raytheon (RTX), Northrup (NOC), and Lockheed Martin (LMT) as safer bets.

"Boeing and Lockheed Martin have a joint venture called the United Launch Alliance and they do launch services. They do that for government [and] they could do that for commercial," said Chanin.

"Although space might not be the focus, it does give investors access some space exposure but not necessarily pure play space exposure," said Chanin.

Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre.

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