In 2015, Aerojet Rocketdyne (AJRD) had a problem. Actually, it had a couple of problems, but the most obvious one was this: In five years' time, Aerojet had succeeded in doubling its revenues to $1.7 billion. But while Aerojet's sales soared, its profits soured.

2015 was Aerojet's second money-losing year in a row -- its third year of losing money out of the previous five. And while business was about to get better (Aerojet would only lose money in one of the succeeding seven years), Aerojet didn't know that yet.  

Worse, as Aerojet's numbers moved in the wrong direction, a new rival in the form of Jeff Bezos's Blue Origin space company was moving in on Aerojet's engine business, bidding to build the new main engine for Aerojet customer United Launch Alliance (ULA). If that happened, Aerojet wouldn't be able to sell ULA its new AR1 rocket engine!

Ultimately, Aerojet would, in fact, lose this bid to Blue Origin -- but again, Aerojet didn't know that yet. And not knowing which way the ULA decision would land, Aerojet came up with a plan: It would offer to buy ULA for $2 billion, thus ensuring ULA would buy its AR1 engine instead of Blue Origin's BE-4 engine.

Aerojet fails -- and then Lockheed does, too

As it turned out, Aerojet's bid to buy ULA failed, too, when Boeing (BA -2.14%) -- which owned 50% of ULA -- refused to sell. (As Boeing Space president Craig Cooning put it, he didn't "want to have anything to do with" a merger of ULA and Aerojet).  

That was true seven years ago, but is it true today?

Last year if you recall, Lockheed Martin (LMT 0.22%) -- which owns ULA's other 50% -- attempted to buy Aerojet Rocketdyne for $4.4 billion. Aerojet was interested, but the Federal Trade Commission was not, and sued to block the merger, which ultimately fell apart in February 2022.

In its complaint, the FTC warned that allowing Lockheed to acquire Aerojet "would give Lockheed the ability to cut off other defense contractors from the critical components they need to build competing missiles" and permit Lockheed to "jack up the price the U.S. government has to pay [for missiles and rockets], while delivering lower quality and less innovation."  

Well, maybe the FTC won't let Lockheed buy Aerojet. But that still leaves open the possibility of Aerojet buying part of Lockheed. Perhaps it's time for Aerojet to offer to buy ULA again?

Completing the circle

Whether ULA would agree to a deal now is an open question, but from Aerojet's perspective, a merger with ULA still makes a lot of sense.

Whereas in 2015, Aerojet was growing revenues strongly, over the last seven years, Aerojet only managed to grow its revenues by 27.5%. (Analysts polled by S&P Global Market Intelligence foresee similarly slow growth as far out as they're willing to make estimates -- about 4.4% annual sales growth). In contrast, ULA has more than doubled its revenues since 2015, generating revenue of $1.3 billion last year, according to data from      

Currently, says Reuters, Aerojet is in the process of shopping itself around, trying to recover from the failed Lockheed merger, and looking for another buyer.  

And there are things to like about Aerojet. While its space program is on the ropes, Aerojet's defense business supplies the motors for in-demand hardware, including Stinger anti-aircraft missiles, Javelin anti-tank missiles, and Guided Multiple Launch Rocket Systems. But even so, Aerojet's failure to find a buyer for its AR1 engine, its slow growth prospects, and its expensive valuation (the stock trades for 42.7 times trailing earnings) mean Aerojet could struggle to find another buyer willing to bid as generously as Lockheed did .

Instead of selling, therefore, it might make more sense for Aerojet to think about buying instead. A merger with ULA could do a lot to solve Aerojet's growth problems, not least by giving it a captive customer for its AR1 rockets. But if ULA declines to be bought -- or if the FTC raises objections to such a plan -- there are other alternatives.

The last few years have seen the creation of multiple new space companies -- from Astra to Rocket Lab and from ABL to Virgin Galactic to Phantom Space. Some of these companies are succeeding just fine on their own, but others have experienced failures with their rocket engines, ruining their stock valuations and imperiling their business prospects. If ULA won't sell, Aerojet might decide to buy one of these new space SPACs, lending its expertise in engines in exchange for a chance to juice its own growth prospects.

Best of all, Aerojet boasts a near-debt-free balance sheet and a richly valued stock giving it flexibility should it choose to pay for a purchase with either cash or stock. With growth prospects slim but its stock trading near an all-time high, it's time for Aerojet to go shopping.