What a long, strange trip it’s been since space stocks stormed onto the stock market in 2021.
Back in the dog days of the pandemic — when most of America was quarantining, and many of us were day trading in meme stocks with government-issued COVID checks — a series of unprofitable space companies decided to go public via the sketchy route of reverse-merging into already listed special purpose acquisition companies (SPACs).
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It didn’t take long for most of these stocks to lose most of their value, as prices plunged 70%, 80%, and even 90% through early 2023. But in 2024, investors (cautiously) returned to the market, and happier times may be here at last.
Image source: Getty Images.
Three space stocks in particular look interesting to me right now. Well off their lows following their initial public offering, BlackSky Technology (NYSE: BKSY), Spire Global (NYSE: SPIR), and Redwire (NYSE: RDW) still sit in an ideal range of two to four times trailing sales.
Historical valuations tell me that this is the “right” price for a not-yet-profitable space stock. (And since I worked out that valuation, Lockheed Martin has confirmed it by acquiring Terran Orbital for 3.3 times sales.)
There’s no guarantee these three stocks will turn profitable. But I think at their present valuations, each is sufficiently cheap to be worth at least a small investment, with the goal of holding until they’re either acquired (as Terran Orbital was) or they become profitable on their own — and maybe for a long time afterward.
Here’s what you need to know about them.
BlackSky, at $338 million in market capitalization, is arguably the cheapest of these three stocks. With 16 satellites in orbit, BlackSky operates as an Earth observation (i.e. spy satellite) company. It provides its government and commercial customers with what it calls “real-time space-based intelligence” by photographing objects of interest on Earth as often as 15 times per day.
According to data from S&P Global Market Intelligence, the company sells primarily to U.S. government agencies such as the Department of Defense and National Reconnaissance Office. But BlackSky also sells internationally (to the Indonesian Ministry of Defense, for example) as well as to corporate partners such as Palantir.
Financially, it remains a small fish in a big space pond, with annual revenue of only $107 million. It’s also losing money — $42 million over the past year. The company is also burning nearly $55 million in cash annually.
Still, with $63 million in the bank, the company has more than a year to go before it starts to run out of money. With sales growing rapidly (they’re expected to double through 2027), analysts polled by S&P think the company will turn free-cash-flow positive by 2026.
Meaning BlackSky might have enough cash already to keep it going until it’s generating cash on its own.
A second spy satellite company I have my eye on is Spire, and its story is even more interesting. Historically focused on providing satellite-based intelligence to monitor global shipping, it agreed in November to sell this, its biggest business, to the privately held commodity data and analytics platform Kpler for $241 million.
On the one hand, this makes Spire a work in progress, as investors must wait and see what it will make of its remaining portfolio of products servicing the aviation, weather, and space industries, and its constellation of 100-plus satellites in orbit.
On the other hand, the huge cash windfall from the Kpler sale will enable Spire to pay off all its debt and leave perhaps $170 million in cash on its balance sheet — meaning half the company’s market cap is backed up by cold, hard cash.
With an annual burn rate of only $44 million or so, this gives Spire four years’ lease on life, as it works to turn its remaining operations into a consistently profitable business.
Redwire focuses on “space infrastructure” — building things in and for use in space — rather than launching satellites to provide imaging services from space.
Valued around $800 million, Redwire is roughly as big as BlackSky and Spire combined, and it’s arguably closer to generating free cash flow than either of the others. Its cash burn rate was only a few million dollars in 2023.
It’s likely to burn more than that this year, but analysts have this company pegged for positive free cash flow in 2025. With $43 million in the bank, Redwire almost certainly has enough to survive until it’s generating cash on its own.
Until one (or two, or all three) of these space companies turns officially profitable, assigning the right value to their shares will be an exercise in guesswork. BlackSky stock only costs 3.1 times annual sales; Spire has a 3.4 multiple, and Redwire is cheapest of all with a price-to-sales ratio of only 2.7.
While I like Redwire’s chances best, and I’m most skeptical of BlackSky, at these low valuations, my hunch is that all three of these companies are capable of surviving and thriving over the long term.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool recommends Lockheed Martin. The Motley Fool has a disclosure policy.
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