LEO satellite developers have been hot stocks over the past year.
AST SpaceMobile (ASTS 0.41%) made waves among investors after merging with a special purpose acquisition company (SPAC) and going public on April 7, 2021. The low earth orbit (LEO) satellite developer’s shares opened at $11.63 on the first day, fell to around $2 in April of this year, and then soared to an all-time high of $38.60 on August 19th.
At the time of writing, AST shares are trading at around $26, giving it a market cap of $4.2 billion. That’s a staggering 57 times next year’s projected revenue of $73.5 million. Let’s take a look at why investors are paying such a high premium for AST shares, whether this rally is sustainable, and whether it has the potential to generate billionaire-making gains in the future.
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Why are investors so excited about AST SpaceMobile?
AST’s LEO satellites will be used to create a “satellite constellation” in space to boost cellular connectivity for 2G, 4G and 5G smartphones. These networks can fill in the coverage gaps of terrestrial tower-based cellular networks.
AST is similar to SpaceX’s Starlink, which provides space-based broadband coverage in 80 countries from LEO satellites. However, AST supports more low-band spectrum compared to Starlink, which focuses primarily on high-band spectrum. High-band spectrum can operate at higher speeds than low-band spectrum, but has a smaller coverage area. T-Mobile US uses high-band spectrum, so it partnered with Starlink two years ago to expand its coverage area. AT&T and Verizon Communications, which use low-band spectrum, signed deals with AST earlier this year.
AST launched its first BlueWalker 3 prototype satellite in September 2022. After several successful voice and data tests, it put its first five commercial Block 1 BlueBird (BB1-BB5) satellites into orbit earlier this month. This long-awaited launch marked the first major milestone on the way to generating stable revenue.
But can AST SpaceMobile maintain its strong reputation?
AST SpaceMobile didn’t make any notable profits last year, and analysts expect it to post just $6 million in revenue and a $260 million net loss this year, when the company begins commercializing its first satellites. But by 2026, analysts expect revenue to grow to $393 million and the net loss to narrow to $30 million.
Based on these expectations (and of course, we shouldn’t be too skeptical), AST’s stock looks reasonably valued at 11 times 2026 sales. And the company still had $285 million in cash and cash equivalents as of the end of the second quarter of 2024, and a manageable debt-to-equity ratio of 1.4, so it’s not likely to go bankrupt anytime soon.
However, future growth of AST is dependent on strict communications contracts, while Polaris Market Research expects the global LEO satellite market to expand at a compound annual growth rate (CAGR) of only 13.4% from 2024 to 2032. As such, AST growth is likely to slow sharply as the LEO satellite market matures.
Can AST SpaceMobile generate enough profits to make you a millionaire?
If AST matches analysts’ expectations for 2026 and grows its sales at a 20% compound annual growth rate over the next eight years, it could generate $1.7 billion in revenue by 2034. If it traded at a more realistic 20 times sales, it would be valued at $34 billion.
That’s an 8x gain from the current share price, but unless you invest $125,000 or more in speculative stocks today, you won’t become a millionaire. This is also a best-case scenario that assumes the macro environment stabilizes and AST is able to outperform Starlink and other LEO satellite developers.
But even if AST doesn’t generate billionaire-creating profits on its own, it may have plenty of room to grow. That may be why company insiders have bought nearly nine times as many shares as they sold in the past 12 months. Also, the company’s secondary public offering and high stock-based compensation expenses have increased the number of shares outstanding by nearly 70%. Simply put, AST remains a great speculative space stock, but I don’t see it creating many billionaires over the next decade.
Leo Sun invests in AT&T. The Motley Fool recommends T-Mobile US and Verizon Communications. The Motley Fool has a disclosure policy.
