It wasn't long ago that I asked Fool co-founder and Motley Fool Rule Breakers chief analyst David Gardner how he knows when he's found a real Rule Breaker. Surprisingly, he said it was when you feel just a little uncomfortable buying the stock. That's because, David said, you're doing exactly what everyone else won't.
I didn't fully appreciate that feeling until I started digging into SpaceDev (OTC BB: SPDV). Tuesday, the tiny California space contractor reported a 65% gain in sales year-over-year, but its net loss more than doubled. Not surprisingly, the penny stock has shed nearly 4% of its value since.
But there's more to the story. (And, really, when isn't that true with stocks?) First, the company took a massive $3.3 million noncash interest charge to earnings for paying off a credit facility with its initial banker, the Laurus Master Fund. Take that away, and you're left with a company that is currently producing modestly positive owner earnings, on the order of $300,000 annually.
Second, the company is expecting continued revenue improvements and features a backlog of roughly $43 million in work still under contract. Guidance calls for roughly $3.5 million in sales for the first half of 2005. That would account for more than 70% of all 2004 revenue and put the company on pace to do $7 million worth of work for the year.
Risks remain, of course. A contract with the Missile Defense Agency accounts for roughly $40 million, or more than 90%, of the firm's backlog. And future growth depends on SpaceDev deriving its revenue from mass-marketed space products, a substantial switch from the government projects it services today.
Still, investing, like space travel, is entirely about risk. So far, almost no one on the Street has recognized the merits of SpaceDev, and the insiders maintain a high degree of ownership and are still buying shares. Both of those factors help offset the very real risk of total capital loss that could come with a bet on SpaceDev. And that's what causes me, on the brink of purchasing shares, to get that gnawing, Rule Breaking feeling in my gut. But I wouldn't have it any other way.
For related Foolishness:
- Yeah, I really did write a love letter to SpaceDev.
- Can you believe these guys actually burn rubber to get to space?
- Find other space-faring Rule Breaking stock ideas here.
Are you rebel investor with a longing portfolio? Not to worry, we can help. Take a risk-free 30-day trial to Motley Fool Rule Breakers today.
Fool contributor Tim Beyers still digs good science fiction when he can get his hands on it. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. You can find out what's in his portfolio by checking Tim's Fool profile, which is here. The Motley Fool has a disclosure policy.
