When investing in a share in the dark, cold days of early January, the idea that it may have already tripled by the end of August is a thought to warm the cockles! But that is exactly what has happened with Filtronic (LSE: FTC). Having been a penny stock just a few months ago, the share has soared 252% so far in 2024. What a return!
Something else that has returned is a large customer. Filtronic announced today (30 August) that rocket company SpaceX has placed a follow-on production order for its E-band solid state power amplifier modules. Those will be used to support SpaceX growing the size of its Starlink satellite Internet service.
Valued at roughly £6.4m, Filtronic said the order means it now expects to trade ahead of expectations in its 2025 financial year.
As an investor, have I missed the boat with this one-time penny stock? Or might its share price, as well as its products, still be heading to the stars?
Mixed financial track record
With £25m of revenues last year, that £6.4m contract win is significant for Filtronic. I also think the fact that a customer with the high technical demand of SpaceX is coming back with a sizeable repeat order is a powerful endorsement of Filtronic’s offering. It could help attract other customers, opening the door to revenue growth not only from SpaceX but also other companies.
But when it comes to the numbers, historically, revenue has not been as big a challenge for Filtronic as profit. Last year’s profit of £3.1m after tax was decent. But the year before, the number had been less than a sixth of that.
That helps explain the wild ride it has had. But what now?
Could the prospect of ongoing revenue growth mean fixed costs can be spread thinner, boosting the bottom line even more? Or could servicing big contracts stretch the modest-sized company and incur spending that drags it back into the red, as it was a few years ago?
I’m tempted to buy
Time will tell, and it could go either way. But I am optimistic. It was only last month Filtronic announced a multimillion pound SpaceX order – and now it has announced another one.
If it can scale up sales significantly I reckon the company could boost profit margins. It is an expert in a specialist field. Clients are willing to pay well – no smart customer wants to risk losing a hugely costly satellite because they scrimped on buying the right components.
This year’s share price rise has been incredible. But over five years, the shares have soared 944%!
The price-to-earnings (P/E) ratio of 53 is too high for my taste, but if I am right about the prospect for fast earnings growth, the prospective P/E ratio could be lower.
I am tempted by the investment case here and will be weighing up making a Filtronic buy in September.
