Is Now the Time to Buy Space Flight Stocks?

It was only a couple of years ago when special purpose acquisition companies (SPAC) stocks (i.e., stocks representing shell companies with no material business operations, but which would help start-up businesses get listed on major stock exchanges through business combinations), and space flight stocks in particular (some of the best-known ones being brought to the market via SPACs), took flight and stayed in orbit for a brief time. As it turned out, however, gravity set in fairly quickly and the majority of these stocks ran out of rocket fuel.

Still, even after their failure to launch, space flight stocks may continue to appeal to starry-eyed speculators with big dreams and some cash burning a hole in their pockets. Ultimately, there may be reasons for risk-on rocketeers to give some of these stocks a shot this summer.

Drilling down on space flight stocks

The collapse of Virgin Orbit didn't necessarily leave a gaping hole in the space flight stock niche, but it did remind prospective investors of the old saying, carpe diem. Any of these companies, even if they start off with fanfare and bravado, could fail at any given moment.

So, what's left? Just to clarify, I'm not counting AST SpaceMobile as a space flight stock as the company's primary business is to provide cellphone service through the use of satellites. I'm also not including SpaceX and Blue Origin because they're not listed on any major, publicly accessible stock exchange.

The primary contenders, then, are Virgin Galactic (NYSE:SPCE), Astra Space (NASDAQ:ASTR), Rocket Lab USA (NASDAQ:RKLB), and Aerojet Rocketdyne (NYSE:AJRD). Those four have a fair amount of daily trading volume and their market caps aren't too tiny (with Astra Space's nearly $100 million market cap being the smallest among them).

If you're a stickler for profitability, you'll be disappointed with the majority of these companies. In this year's first quarter, Virgin Galactic's net loss widened to $0.57 per share; indeed, the company's quarterly per-share net losses have either widened or flatlined since Q4 2021. Astra Space's per-share loss, meanwhile, narrowed to $0.17 per share in Q1 2023 versus the year-earlier quarter's $0.33 per-share loss, so at least there's a sign of improvement.

Rocket Lab's net loss, at $0.06 per share, stayed the same on a year-over-year basis in Q1 2023. The company always seems to barely miss the breakeven mark, but at least Rocket Lab's quarterly EPS misses haven't widened over time. Alas, the only profitable one was Aerojet Rocketdyne with adjusted earnings per share of $0.43, down just a penny compared to the year-earlier quarter's result. For what it's worth, Aerojet Rocketdyne has been profitable for a long time, and while the company's quarterly EPS readings haven't exhibited any discernible pattern, at least they're not shrinking over time.

Judging by another measure, however, Aerojet Rocketdyne isn't perfect by any means. Looking back through a multiple-year time frame, Aerojet Rocketdyne's operating cash flow crested from $253 million in 2018 to $364 million in 2020, and back down into negative territory at -$6.5 million during the trailing 12 months.

Astra Space and Rocket Lab both have much more deeply negative trailing 12-month operating cash flows (-$160.4 million and -$82.59 million, respectively), and those two companies' operating cash flows have generally trended downward on a multi-year time horizon. It's not so easy to discern any particular trend with Virgin Galactic in this respect, but it's certainly not encouraging that the company's operating cash flow fell from +$25.55 million at the end of last year, to -$142.61 million for the trailing 12 months.

Gauging by those metrics, it looks like Aerojet Rocketdyne is comparatively the top pick among a flawed group. Still, no matter which one you might choose to wager your capital on, there's always the risk that the company could run out of cash for future operations at some point.

Grounded space flight stocks could take flight again

If you're willing to overlook these companies' financial faults, however, then there may be some bargains afoot. Shares of Aerojet Rocketdyne (which wasn't a failed SPAC-tacle like some other companies in this space) didn't crash-land, and the company's stock is actually trading fairly close to its all-time high now. Hence, if you're more of a momentum/trend trader, Aerojet Rocketdyne is worth a look, but if you're a contrarian or a bottom fisher, you might choose to look elsewhere.

In contrast, the other three companies' stocks show a familiar trajectory from around $10 before the hype phase commenced to a sky-high price point, inevitably followed by a painful drop. It's challenging to determine whether Virgin Galactic, Astra Space, and Rocket Lab are "good values" now since they have no P/E ratios and no price-to-cash-flow ratios. However, at least you wouldn't be chasing these stocks during their hype phases if you took a small position now.

If it will help you sleep better at night as an investor, Astra Space has a contract with the United States Space Force and Aerojet Rocketdyne has one with the Department of Defense's Office of Manufacturing Capability Expansion and Investment Prioritization. Having government contracts is, of course, a substantial advantage for just about any company, space-bound or otherwise. Meanwhile, Virgin Galactic recently completed its Unity 25 mission, which provided some bragging rights if not a sustained share-price rally.

Truthfully, I can only offer a halfhearted recommendation for Aerojet Rocketdyne over the others since I'm obsessed with profitability, but that's just my personal preference. As for the other three (Virgin Galactic, Astra Space, and Rocket Lab), their financials are too worrisome for me to say that now is the time to buy them. Even if they have government contracts that can boost their revenue, there are ongoing bottom-line and cash-flow concerns. In the final analysis, cautious investors might choose to avoid space flight stocks entirely, or speculate a little bit with Aerojet Rocketdyne stock but consider that as a YOLO trade, not a reliable core holding.

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David Moadel has no position in any of the stocks mentioned. The Motley Fool recommends Rocket Lab Usa. The Motley Fool has a disclosure policy.