How much are space stocks worth?
A couple months ago I waded into the space industry weeds to answer this question, coming away with the firm conviction that if:
- Advent International paid four times sales to buy Maxar Technologies,
- L3Harris bid 2.1 times sales to acquire Aerojet Rocketdyne, and
- Aerojet Rocketdyne itself bid four times sales to buy United Launch Alliance (four years ago)
...then a price-to-sales ratio of two to four might possibly be a fair price to pay for a profitable space stock. And something less than 2-4 times sales might therefore be a fair price to pay for a not-yet-profitable space stock.
And yet, a few months ago, unprofitable space stock Virgin Orbit attempted to sell itself to a private investor for not two, not four, but six times its $33 million in trailing-12-month sales -- $200 million. I concluded this was probably more than the stock was worth.
And now it seems the market agrees with me.
Image source: Getty Images.
Virgin Orbit goes bust
In a matter of days, Virgin Orbit's never-very-likely sale to Texas-based investor Matthew Brown fell apart. In a matter of weeks, the company admitted defeat and declared bankruptcy. And just this past week, that bankruptcy resulted in the sale of most of Virgin Orbit's assets in a bankruptcy court auction. Tic-tac-toe, three in a row:
- Rival "air-launched rocket" company Stratolaunch bid $17 million to acquire Virgin Orbit's "Cosmic Girl" mothership, a converted 747 airliner used to carry Virgin Orbit's rockets to altitude before launching them into orbit.
- Then rival small satellite launcher Rocket Lab (RKLB 0.27%) bid $16.1 million to take over Virgin Orbit's corporate headquarters-cum-140,000 Long Beach manufacturing facility, which Rocket Lab will use to accelerate development of its own Neutron medium-sized rocket.
- And as CNBC just reported, a subsidiary of private space station developer Vast Space bid $2.7 million to acquire various other "machinery, equipment and inventory" from Virgin Orbit.
Add another $650,000 for Virgin Orbit's office furnishings, and the total liquidation value of Virgin Orbit's assets comes to just shy of $36.5 million -- or about 1.1 times trailing-12-month revenue.
What it means to investors
1.1 times trailing sales is obviously a lot less than the 120 times forward sales that Virgin Orbit stock was selling for on the open market in 2021, the heyday of space SPACs. It's also quite a lot less than investors once thought Virgin Orbit was worth.
Chalk up Virgin Orbit's collapse to incredibly bad timing on Virgin Orbit's part, which suffered a rocket launch failure at the very moment its cash reserves dropped below the level needed to fund just a single quarter's worth of the company's $240 million-a-year cash burn rate (according to data from S&P Global Market Intelligence).
But Virgin Orbit's loss does provide some useful information to investors in other space stocks.
Profits matter
What sets successful space stock sales at 2-4 times sales valuations -- like those of Aerojet Rocketdyne and Maxar Technologies -- apart from unsuccessful sales like Virgin Orbit's at 1.1 times sales?
Profits.
Aerojet Rocketdyne wasn't very profitable, but it earned $74 million in the year prior to L3Harris's bid. Maxar Technologies turned briefly GAAP-unprofitable just prior to its acquisition, but at the moment it was acquired, the company was still generating positive cash profits.
Hence the premium valuation to sales.
Valuation matters
In contrast, most pure-play space stocks are less like Aerojet or Maxar and more like Virgin Orbit (i.e. unprofitable).
Run a screen of the 10 best-known space start-up stocks on the market today -- companies as big as $1.2 billion Virgin Galactic (SPCE -5.47%) or $1.1 billion AST SpaceMobile (NASDAQ: ASTS), or as small as Astra Space or Spire Global (worth roughly $100 million apiece) -- and the first thing you'll notice is that none of them are currently profitable.
The big ones sell for insanely high price-to-sales ratios -- like 535 times sales for Virgin Galactic or 77 times sales for AST. Some of the smaller ones are pretty pricey as well. Astra, for example, fetches 11 times trailing sales. Suffice it to say you should have a lot of confidence that such companies will grow quickly before you pay such high multiples to sales.
That being said, if you take Virgin Orbit's 1.1 times sales valuation at liquidation as a kind of "floor price" for space stocks, there are at least a couple options that look interesting. Spire, for example, with $86 million in annual revenue, costs a mere 1.3 times sales -- almost as cheap as Virgin Orbit's terminal valuation. Space infrastructure firm Redwire Corporation is even cheaper at 1.2 times sales. Satellite maker Terran Orbital costs less than 2 times sales.
Make no mistake: Investing in any unprofitable space stock is risky business, as Virgin Orbit investors have discovered to their dismay. But if you've got the stomach for it, at today's prices you just might be lucky enough to find a space stock worth buying.
