On September 30, 2022, I published a Special Report titled 3 Must Own Tech Stocks for 2023.
This report featured my three favorite tech stocks at that time, semiconductor test equipment company Aehr Systems (NASDAQ: AEHR), space stock Maxar Technologies (NASDAQ: MAXR), and digital customer communication platform company Twilio (NASDAQ: TWLO).
I know what you’re thinking: it would be pretty stupid to call a report “Three Must-Own Tech Stocks” and not include three stocks…
Well, the fact is I now have to change the name of that report. Because one of the three stocks I recommended will cease to exist as a public company. Yep, the news hit the wire On December 16: Maxar Technologies is being acquired for $4 billion. That’s a 120% premium to its closing price from yesterday.
I have to say, waking up to see that one of your stocks is up 120% is a good way to start the day.
Of course, I had to go back and review the details of that report. A couple of things stood out.
One: The simple fact is, Maxar’s valuation is too attractive to ignore. The company should do $1.8 billion in revenue this year, $2 billion next year, and the market cap is just $1.5 billion. I’m surprised Maxar hasn’t been bought out by a competitor.
Two, my specific recommendation: Buy shares of Maxar below $22. My 12-month price target is $45.
My price target was very much in line with the valuation at which Maxar is being acquired. But even better, the stock stayed below my “buy under” price of $22 for a solid month after that report was published. There was ample opportunity for Profit Sector readers to buy Maxar shares at $19 – $20, which could put your gains at 157% or higher!
That’s just fantastic. I hope you made some loot on this stock. And if you’d like to write to us and brag about what model Ferrari you’re going to buy, here’s the email address…
The Final Frontier
Now, with war in Europe, an emerging economic war, a looming global recession, soaring interest rates, high inflation, and energy markets in turmoil – I can’t say I’m surprised that when investors look to the heavens, they’re probably more likely to be uttering a prayer that things here on the ground don’t get any worse rather than considering investments in the space economy.
But that hasn’t stopped Elon Musk from his monthly satellite launches as he builds his Terralink network. It hasn’t stopped Richard Branson’s Virgin Galactic (NYSE: SPCE) from selling over $100 million in tickets to wannabe space tourists. And it hasn't stopped NASA from resurrecting its lunar program…
25 years of investing and writing about stocks have taught me that letting personal preferences dictate my investment decisions is a bad idea. For instance, I think space tourism is an idiotic idea, and there is no amount of money you could pay me to sit on top of a barely controlled hydrogen fireball and launch 50,000 feet off the earth’s surface…
But maybe that’s just me.
I also learned long ago that it’s never a good idea to assume that other people aren’t batshit crazy, so who knows, maybe there is potential for a thriving space tourism industry.
However, even if space tourism proves to be a viable business, after a quick look at Virgin Galactic's financials, it is my not-even-slightly humble opinion that you’d have to be batshit crazy to buy the stock.
Virgin Galactic’s main business has been selling stock for the last three years. At the end of 2018, Virgin Galactic reported having 86 million outstanding shares. A year later, it had 196 million outstanding shares. By the end of 2020, Virgin Galactic had issued another 40 million shares bringing its outstanding to 236 million. 2021 total shares outstanding hit 258 million.
Selling all that stock has left Virgin Galactic with a decent cash position – over $1 billion (and put a few hundred million into Branson’s pocket). But the company also has $450 million in debt, burning through $350 million in cash a year. That means more stock sales ahead, which may be difficult until the shareholder lawsuit that Branson defrauded investors by issuing misleading statements is resolved.
On balance, if you’re planning to buy Virgin Galactic stock, shoveling the money into a barely controlled hydrogen fireball might be more fun. At least then, there might be a quick burst of color before your money goes up in smoke.
The Pioneer Problem
The romantic notion of a pioneer is one of my favorite ironies. Because no matter how many times the ship sinks or the food supplies run out, or hostile natives attack, the promise of prosperity and riches from unexplored territory inevitably fires the human imagination and leads to some really bad decision-making.
It’s not so much the potential for riches that is illusory. Risk assessment is usually the problem for the pioneer. To me, the sad thing is that it’s not uncommon for pioneering companies to downplay risk knowingly because they know that the investors get left holding the bag. Richard Branson’s made his money off Virgin Galactic. I assume his employees get regular paychecks. It’s the investors that suffer.
Planet Labs (NYSE: PL) is a satellite imaging company (like Maxar). Satellite imagery is a pretty established business, so Planet Labs steps easily over the first hurdle.
The company operates the world’s largest fleet of earth-observing satellites: over 200 satellites that provide mapping and imaging products for over 600 customers in 40 countries, covering a wide range of sectors, like agriculture, forestry, defense and intelligence, drought and natural disaster response, energy and infrastructure, and mapping.
A couple of weeks ago, it was announced that Planet Labs’s geospatial data will be available through an Amazon Web Services product called SageMaker. SageMaker is a machine learning service, and Planet Labs customers can now plug satellite data directly into SageMaker for analyzing testing, and modeling. This partnership should make Planet Labs’ data more useful and accessible.
Planet Labs' numbers are pretty good. In its most recent earnings report, the company showed year-over-year revenue growth of 57%. Gross margins grew to 54%. Planet Lab's full-year revenue is expected to hit $190 million this year and grow 37% to $260 million next year.
Planet Labs is not yet profitable. Free cash flow for the last 12 months is negative -$80 million, BUT the cash position is very solid – $450 million in the bank with less than $20 million in debt.
The stock is a little expensive: current market capitalization is $1.3 billion on $190 million in revenue, which puts the price-to-sales ratio below 7. Again, a little expensive, but not outrageously so…
The stock currently trades for ~$4.25. I’d call Planet Labs a strong buy at $3.50 a share.
I’m also intrigued by another company called Satixfy (NASDAQ: SATX) that went public through a SPAC back in October. It’s an Israeli company making chips, user terminals, modems, and satellite antenna arrays. Satixfy gets a little instant credibility because it was started by two founders of another Israeli company, Gilat Satellite (NASDAQ: GILT).
Sadly though, Satixfy fails to make the cut for two reasons. One, it has an investor presentation that forecasts revenue will hit $374 million and EBITDA earnings will hit $113 million – in 2026.
Sounds good for a company with a current market cap of $413 million. The problem is, Satixfy has just $14 million in revenue over the last 12 months. Going from $14 million to $374 million in revenue in three years is a pretty aggressive forecast. It definitely makes me raise an eyebrow…
And then my other eyebrow shoots up when I see that the stock jumped from $13 to $79 and back to $25 in the few days surrounding its IPO. That is not normal behavior. I can only conclude that some shenanigans are afoot, and I will never risk my money if I suspect shenanigans. Still, I will keep an eye on this one, if only because I want to see if my suspicions are justified.
In closing, I have to say that I’m a little disappointed that there isn’t more opportunity with space stocks. I'll continue to train my eyes to the skies, but until we have some solid fundamentals, I'm not sure we'll see another Maxar in 2023.
Until next time,
The Profit Sector