Redwire Corporation (RDW -7.54%) had a terrific Q2 -- or at least, investors viewed it that way.
Redwire beat sales expectations, reporting $117 million for the quarter earlier this month. Losses were less than expected at only $0.09 per share. Investors cheered -- and shares of the space infrastructure-and-terrestrial drones company soared past $13 a share the day after earnings were released, a one-day gain of nearly 15%.
They've mostly stayed above $13 since that Aug. 5 earnings report, but briefly dipped below that level on Tuesday. Today, the stock is down 7.3% (as of 12:15 p.m.). And now the question for investors is: Should you buy Redwire stock while it's still below $13?
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Redwire stock is a rocket
The sales and earnings news for last quarter was only the beginning, too. Proceeding through its report, Redwire described how it flipped from negative gross profit margins a year ago to positive 27.8% this time, and how it added 42% more money entering its backlog as new orders, than exited as revenue -- a book-to-bill ratio of 1.42. And how its backlog of work to be done now stands at $542 million.
That's more than 15 months' work all lined up and ready to be done, at the company's current annual revenue rate of $426 million.
Between the rising backlog and the accelerating rate of new orders, Redwire anticipates growing its sales by up to 49% this year, to perhaps $500 million.
NYSE: RDW
Key Data Points
How to value Redwire stock
That's the good news.
The bad news is that analysts polled by S&P Global Market Intelligence think Redwire will need to reach closer to $700 million before it has a chance of becoming profitable. Long-ish range forecasts see the company approaching that mark in 2028, with about $685 million in sales -- but still $10 million in losses. So Redwire will probably have to exceed $700 million in revenue before it reaches breakeven profit under GAAP.
Until that happens, investors won't be able to value Redwire on price-to-earnings, and will have to make do with price-to-sales ratios.
This, unfortunately, is the other bad news. Currently priced at $3.35 billion in market capitalization, Redwire stock sells for 7.9 times trailing sales and 6.7 times its own best estimate of current-year sales. The stock furthermore costs nearly 5 times the sales that analysts forecast for it in 2028 -- two years from now.
All of these valuations, unfortunately, remain well above the 2x-4x sales valuation that investors have historically paid for not-yet-profitable space start-ups like Redwire. For this reason, I continue to view Redwire stock as overvalued.
Tempting as it may be to buy Redwire now that its stock has fallen below $13, I'd need to see it drop to $8 or below before I'd be interested in buying.
