Space stocks are a relatively new feature of the public markets. Just a couple of years ago, investors had essentially no ability to gain exposure to the possibility of interstellar travel. Now they do.
To be sure, satellite stocks have been around for a while, though most focus on activities here on Earth. (In addition, most have been poor investments over time.) Two of the biggest space companies remain private: Blue Origin, backed by Amazon (NASDAQ:AMZN) founder Jeff Bezos, and SpaceX, chaired by Tesla (NASDAQ:TSLA) chief executive officer Elon Musk.
Now, largely thanks to the relatively new trend of SPAC (special purpose acquisition company) mergers, space stocks are available to the individual investor. And though the group is small, it’s fascinating. There may not be a sector in the entire market that has more potential risk, and more potential reward. And there’s a reasonable question as to whether the industry is even viable, at least any time soon.
Of course, if the industry is viable, first movers have an enormous advantage. Profitability will be enormous for the winners, even if those profits are years out.
There are a number of ways this all can play out. It’s worth considering the most likely near-term outcomes for the most recent space stocks, particularly these three names:
- Virgin Galactic (NYSE:SPCE)
- Stable Road Acquisition (NASDAQ:SRAC)
- New Providence Acquisition (NASDAQ:NPA)
Space Stocks Keep Climbing
There’s no reason space stocks can’t keep climbing. Virgin Galactic went public at $10 via its own SPAC merger that closed in October 2019, and now trades at $24 despite an early sell-off. Stable Road is merging with “space cargo” company Momentus and looks like an intriguing play. NPA is more of a satellite play, but its merger target, AST SpaceMobile, is building out a satellite-based mobile network.
All of these stocks look like awfully good fits for the current market. Investors still love growth stocks, as trading early in 2021 shows. Valuation concerns are not particularly paramount, which is good news for a group where valuation is next to impossible.
Simply put, the market is taking the long view. As long as growth stories remain intact, stocks seemingly can keep gaining. If that trend holds in 2021, space stocks should do well, given that few sectors have the same kind of long-term potential.
Catastrophe
There is one obvious risk to the group, however: a disaster in space.
That disaster doesn’t necessarily have to happen to one of the public companies. If, for instance, a Blue Origin rocket explodes – particularly on a crewed mission – it could color the entire industry.
That seems particularly true for Virgin Galactic, whose business model relies on confidence by travelers in the safety of Virgin’s operations. Indeed, SPCE stock already took a hit when a test flight failed in December; the stock still sits more than 10% below where it traded before that news.
To be fair, a failed test flight in fact caused a fatality back in 2014, but it’s possible that investors (and potential consumers) have forgotten that tragic incident. With Virgin flights costing $250,000 each, however, any safety concerns would be a big problem. And lower demand for space tourism could read across to cargo play Momentus as well.
Patience Runs Out
Of course, some investors might also point to space stocks as another sign of a bubble in the broad market. Virgin, Momentus, and AST all are years away from generating significant revenue. Profitability is even further out – perhaps not until next decade.
And yet space stocks have big valuations. Virgin is worth more than $6 billion; SPCE stock more than quadrupled in a year despite seemingly little in the way of news. The current SRAC stock price values Momentus at about $2.4 billion. AST SpaceMobile is worth nearly $2 billion even with an estimated $1.7 billion in required capital spend simply for the first phase of its operations.
In a best-case scenario for any of these stocks, those valuations will in retrospect will look too cheap. But there’s a long way to getting to those best-case scenarios, or anywhere close. In this market, with a number of stocks, investors seem to be forgetting, or simply ignoring, the potential pitfalls.
That may change if market sentiment turns south at all. If stocks fall, space stocks almost certainly won’t be spared.
On the date of publication, Vince Martin did not have (either directly or indirectly) any positions in the securities mentioned in this article.
After spending time at a retail brokerage, Vince Martin has covered the financial industry for close to a decade for InvestorPlace.com and other outlets.
