It’s not often the term penny stock is written in relation to SpaceX. Yet that’s exactly what Filtronic (LSE:FTC) was before Elon Musk’s rocket giant took a keen interest in the UK firm’s advanced communications solutions.
Indeed, SpaceX took more than an interest. It formed a strategic partnership with Filtronic, placed record orders for its products, and even took a financial interest in the company.
Unsurprisingly, this put Starship-style boosters under the share price, lifting it from 21p at the start of 2024 to 469p by May this year. For those without a calculator to hand, that was an otherworldly return of 2,133%!
Since that peak though, which coincided with the pre-SpaceX IPO mania, Filtronic stock has crashed 53% to around 220p.
Is this a dip-buying opportunity worth exploring further?
Still ‘early stages’
Filtronic designs and manufactures specialist products that transmit, receive and amplify radio signals. These are used across aerospace and defence, telecoms, and space markets.
The company supplies SpaceX with gallium nitride E-band technology for Starlink, the global satellite internet service. Put simply, this technology helps move high-speed data between Starlink satellites and ground infrastructure.
A record £47.3m order received a year ago from SpaceX is expected to help boost revenue to £63m this fiscal year (FY27), then £75m in FY28. Back in FY21, the figure was less than £16m.
Profitability did take a hit last year, as Filtronic invested heavily to support future growth. This included a new headquarters and manufacturing facility that will support annual revenues in excess of £200m.
The radio frequency specialist ended FY26 with a robust balance sheet, underpinned by £12.9m of cash, and a record order book.
I believe we are still in the early stages of our journey. The markets in which we operate continue to expand rapidly [and] our technology roadmap is strengthening…The opportunities ahead are significant.
CEO Nat Edington.
What are the risks?
Now, as promising as this undoubtedly sounds, there are a few risks I should highlight. First, there’s lumpiness in revenue and earnings due to the timing of contracts, as mentioned. Filtronic isn’t an up-and-to-the-right growth story.
Furthermore, SpaceX represents a high level of customer concentration. While it fell last year to 68% of group revenue, down from 83% in FY25, it’s still a hefty chunk. So the firm will need to keep widening the customer base.
Finally, despite being cut in half, the stock still isn’t cheap. Based on forecasts for this year, it’s trading at around 57 times earnings. A high valuation adds significant risk if growth underwhelms.
Finally, some sort of product defect for SpaceX could be disastrous. If the rocket and satellite giant were to stop placing new orders, the investment case would collapse, in my opinion.
Time to consider buying?
Still, if an investor is willing to take a five-year view with this stock, I think Filtronic is worth considering. SpaceX has huge ambitions to expand and strengthen the Starlink mega-constellation.
Filtronic is actively working with Elon Musk’s firm on new frequency bands beyond its core E-band offering, while developing technology for both ground station applications and the payload.
There are significant European defence opportunities opening up too. Looking ahead, I think there’s a strong chance this stock gets its mojo back at some point.
Should you invest £5,000 in Filtronic Plc right now?
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Ben McPoland owns shares in SpaceX.
