AST SpaceMobile Is Up 550% This Year: Is It Too Late To Buy The Stock?

Many companies went public through mergers with special purpose acquisition companies (SPACs) in 2020 and 2021. These blank check public companies allowed private companies to avoid the slower and more rigorous initial public offering (IPO) process reach the markets in a zero regime. percentage interest rate environment that has whetted investors’ appetite for more speculative investments.

Unfortunately, most did not pan out. Many have since gone bankrupt or traded well below today’s highs.

AST SpaceMobile (ASTS -2.86%) it was in that group until the stock exploded higher earlier this year. Shares are now near $30, a 550% return over the past year.

What changed the game at AST SpaceMobile, and more importantly, can investors still buy the stock today?

Why did the stock take off?

Mobile networks transmit signals back and forth through antennas attached to millions of cell towers, small cells and other infrastructure around the world. But even today, certain areas such as remote locations do not have quality network coverage. Satellite Internet becomes a solution. Elon Musk’s Starlink has more than 6,000 satellites in orbit that provide internet service from space.

AST SpaceMobile is building a satellite network capable of cellular service, which would be like putting cell towers in space instead of at ground level. The company achieved 5G voice calls and download speeds of 14 megabits per second (Mbps) a year ago, but faces the expensive task of building and launching enough satellites to make its technology commercially feasible.

The stock’s explosive rally began in May when AT&T announced a commercial agreement with AST SpaceMobile until 2030. The company also received support (investments and/or commercial contracts) from Verizon Communications, Alphabetand Vodafone. This support is a game changer as it shows the demand for AST SpaceMobile technology and gives the company resources to help build out its network.

Investors should consider pumping the brakes

AST SpaceMobile successfully launched the first five commercial satellites into orbit in early September. The company has begun building the next 17 satellites and has stated an estimated need for 45 to 60 to provide large-scale text, voice and data services in the United States. The company will likely take several years to generate significant revenue. Analysts estimate that it will generate only 6 million dollars this year and 74 million dollars in 2025.

Meanwhile, the stock now has an enterprise value of $4 billion. In other words, buying shares here means paying for income that’s probably three years away at best. That also leaves no margin to account for competition from Starlink, which has rapidly launched more than 100 cellular-capable satellites since its first in January, or potential dilution, as AST SpaceMobile will have, undoubtedly needing more money than it currently has to build its network. .

Management requested to sell up to $400 million in stock a few weeks ago, and it wouldn’t be a shock to see more shares issued at some point. Selling new shares when stocks are expensive is a smart way to raise cash, but it still dilutes investors and eats into growth investments.

Here is the best way to invest in stocks

AST SpaceMobile is a risky stock. The company has several years to build its network, and today there is no telling exactly how long it will take, how much it will cost, what regulatory hurdles it may face, or even what its long-term margins and financials will look like. if everything works out. Will Starlink, which is currently ahead of AST SpaceMobile and has much deeper pockets, squeeze margins by offering its network at a lower price?

Telecommunications is already fiercely competitive in the United States. Most Expensive US Telecom Carrier Stock, T-Mobileit trades at just 3 times sales, implying that AST SpaceMobile, assuming a similar financial profile to a mobile carrier, is priced at over $1 billion in revenue at the current price.

I might be too conservative, but prudence can save an investor from big mistakes. If you believe in AST SpaceMobile or at least want to own the stock, consider buying the stock slowly using a dollar-averaging strategy. Even if the stock beats expectations, it’s likely to be volatile down the road, and investors with some cash on hand could buy opportunistically. Don’t chase the stock just because it’s big.