SpaceDev (OTC BB: SPDV)
Trading at $1.59 as of 2/9/05

This article is part of our annual Stocks Fools Love Valentine's Day special.

You have to grapple with one irrefutable truth if you're going to be an investor: You're trying to profit from someone else's dream. It's a dream they may have had as a child or maybe just a few months prior. Whatever the circumstances, they at one point turned their dream into a company and then took it out to the public markets. Think of Jeff Bezos at Amazon (NASDAQ:AMZN). Or maybe Steve Wozniak and current CEO Steve Jobs at Apple Computer (Nasdaq; AAPL). Even Bill Gates of Microsoft (NASDAQ:MSFT) fame was among the dreamers at one point, and he may still be.

I love managers like this. That's because anyone who builds a company on a dream is bound to be supremely motivated. And there's plenty of anecdotal evidence available to us that suggests determination -- ahem -- determines corporate success. I have yet to find a manager more determined than Jim Benson, CEO of SpaceDev. And that's why, Jim, I'm in love with your company.

SpaceDev is an idea factory founded by computer industry veteran Benson in 1997. It is also the company behind the rubber-burning rocket used to propel SpaceShipOne to the X Prize. But the prospect of propelling the posh space planes Sir Richard Branson has ordered for his 70-mile-high club isn't what makes my heart go pitter-patter when it comes to SpaceDev. Nope, I'm captivated by how the business is run.

Put simply, SpaceDev is using government money to create a portfolio of space-related products that it thinks will dramatically lower the cost of space travel. The goal is to build as many innovations as possible cheaply, figuring that at least one will have such a dramatic impact on the industry that it will become a mass-marketed product. That's a classic Rule Breaking idea. Besides, even if it isn't SpaceDev that spearheads the revolution, the space market is experiencing a massive shift. Benson thinks it is similar in nature to the uprising that brought forth the personal computer from the mainframe. In his words: "This is a $100 billion a year business that's ripe for a microcomputer-like revolution."

Is that really possible? There's no perfect crystal ball to tell us for sure. But there may be clues in three of the ideas taking shape at SpaceDev now:

Using the Internet for satellite communications. Believe it or not, this technology, which allows mission elements to be controlled anywhere in the world using a Web-connected laptop computer, is already in space and has been operating successfully for more than two years. The original mission called for an 18-month flight. More importantly, much of the components had never before been tested for space flight.

Portable orbital support vehicles. This would allow any satellite to have its own onboard lightweight booster capable of reaching and preserving an ideal orbit. Many satellites come short of their ideal drop-off point after an initial launch, so there's clearly a need. Plus, maintaining a good orbit could extend the useful life of satellites by years.

Microsatellites the size of a dishwasher built with off-the-shelf components. Doing so, says Benson, could reduce the total cost of the cheapest probes by more than 70%, down from $25 million to less than $7 million.

Exciting though each of these innovations may be, there's simply no guarantee that any one of them will catch on. But you know what? As an investor, I really don't care whether any of them do. I'm investing in the business, not these products. I love SpaceDev because it is focused on delivering cheap innovations to an industry desperately in need of some. It also doesn't hurt that the company has more than $40 million left on its contracts for the government, has $5 million in the bank, and recently eliminated its debt. (The company had taken $2.5 million in charges to income through the third quarter to retire the convertible debt that sullied its balance sheet.)

Moreover, the company has proven it can sell, growing revenue for seven straight quarters. Cash flow has also expanded for four consecutive quarters.

And valuation? Granted, we're speculating here, but that's what you do when you invest in a potential Rule Breaker. My calculations figure that if SpaceDev were to generate even one mass-produced satellite product -- or 15 to 20 sales -- it would generate more than $100 million in revenue. That's more than 20 times greater than today's levels and more than 3 times its current market capitalization. It's fair to figure that SpaceDev wouldn't trade for less than sales were it to nab a hit, so even a conservative estimate would price the shares for at least a four-bagger from today's levels.

I guess you can color me smitten, and one day, perhaps I'll become a SpaceDev owner. Should that happen, I'll hope to never sell. Don't break my heart, Jim.

Fool contributor Tim Beyers, TMF MileHigh on our discussion boards, owes a debt of gratitude to fellow Fools Seth Jayson and Bill Mann, both of whom have researched SpaceDev. Seth also provided help to secure an interview with SpaceDev CEO Jim Benson. Thanks, guys. Tim owns no shares in any of the companies mentioned in this story. To find what's in his portfolio, check Tim's Fool profile, which is here. The Motley Fool has a disclosure policy.