Filtronic: The Hidden Gem of 2024
Filtronic (LSE: FTC) is a stock that has been quietly soaring under the radar, causing many investors to regret not jumping on board in 2024. Within just a year, the price of this small-cap stock skyrocketed by a remarkable 359%, transforming it from a humble penny share trading at 22p to a substantial 101p.
Reflecting on the past five years, the stock of this electronic components specialist has surged an astonishing 839%. The recent 12% increase on January 13th only adds to its impressive track record.
While I may have missed some significant gains, the market cap of this AIM-listed firm remains relatively modest at £218m. Thanks to a lucrative partnership with SpaceX, the company is experiencing robust growth, raising the question of whether Filtronic could be the next millionaire-maker at its current price. Let’s delve into this intriguing opportunity.
Exploring Filtronic’s Core Business
Filtronic specializes in designing and manufacturing radio frequency communication products for aerospace, defense, space, and telecommunications sectors. Its clientele includes major players like BAE Systems and QinetiQ within the FTSE 350 defense industry.
Of particular interest is Filtronic’s collaboration with SpaceX, the brainchild of tech entrepreneur Elon Musk. SpaceX operates Starlink, a groundbreaking satellite network known for providing high-speed internet access, even in the most remote areas. With over 4.6 million subscribers, Starlink marks a significant advancement in global connectivity.
In April 2024, Filtronic secured a five-year commercial agreement to supply E-band solid-state power amplifiers for Starlink, boosting the efficiency of weak signals. This was swiftly followed by a substantial follow-up order from SpaceX in August the same year.
SpaceX is renowned for its rigorous standards when selecting suppliers, a testament to Filtronic’s innovative and high-quality products. These strategic collaborations reinforce Filtronic’s reputation as a reliable provider of cutting-edge technology.
Explosive Growth Trajectory
In a recent update, Filtronic revealed that its order intake for the current financial year is exceeding expectations, hinting at robust growth. Analysts have revised their revenue forecasts, with many now anticipating a significant 89% increase to £48m compared to the previous year’s £25.4m.
On the profit front, Edison analysts predict pre-tax profits to skyrocket from £3.4m to £11.5m, reflecting a stellar 238% year-on-year growth. This rapid expansion underscores Filtronic’s position as a fast-growing company in the market.
Thriving Aerospace Sector
The thriving space industry is another factor propelling Filtronic’s growth prospects. Competition is heating up, with Blue Origin, owned by Amazon’s Jeff Bezos, aiming to challenge Starlink with its Project Kuiper. Starlink, on the other hand, plans to expand its mega-constellation to an impressive 42,000 satellites, highlighting the immense growth potential of the space sector.
Contemplating Investment
While the allure of Filtronic’s growth story is undeniable, potential risks linger, particularly concerning the stability of the SpaceX partnership. A strained relationship could dent the company’s growth trajectory and stock performance significantly.
Furthermore, the forward price-to-sales (P/S) multiple stands at around 4.5, indicating a relatively high valuation. This suggests that while substantial gains may be within reach, achieving millionaire-making returns, especially within a £20,000 ISA, might not be plausible.
Nonetheless, the opportunity to indirectly capitalize on SpaceX’s growth through Filtronic’s stock remains appealing. Considering these factors, I am tempted to initiate a modest investment in Filtronic as a strategic play on the burgeoning space industry.
In conclusion, Filtronic presents a compelling investment thesis supported by its innovative products, strong partnerships, and rapid growth trajectory. While risks exist, the company’s potential to ride the wave of the thriving aerospace sector makes it a captivating prospect for savvy investors.
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