In early January, I made a prediction for UK stock Filtronic (LSE: FTC). I said it would soar in 2026 as space stocks came into focus.
In hindsight, that call was spot on – already this year the stock’s up a whopping 115% (and that’s after a 20% drop from its highs). But this big move higher begs the question: is it time to consider taking some profits on this name?
I was right about SpaceX
In January, I also said the SpaceX IPO would most likely lead to more interest in space stocks. And it has. All of a sudden, investors are scrambling for anything space related. Just look at the Seraphim Space Investment Trust – it has also more than doubled in price this year.
Filtronic has been a major beneficiary of the trend. And it isn’t hard to see why. In recent years, this wireless communications company has generated a ton of revenue selling components to SpaceX. It’s also done deals with other satellite companies.
The valuation’s rocketed
Now, this stock was expensive back in January when I highlighted it. At the time, the price-to-earnings (P/E) ratio was close to 50. Today though, we’re looking at a P/E ratio of about 120. That’s really high.
I can’t really justify that earnings multiple, if I’m honest. I was okay with a P/E of 50 but 120 looks stretched, to my mind.
The way I see it, that valuation adds a lot of risk. With sales only expected to rise 13% this financial year, the risk/reward skew doesn’t look favourable to me.
Three other red flags
I’ll point out that the valuation isn’t the only thing that spooks me here. Another issue is the chart. It’s gone parabolic. And when charts do this, it often ends in tears.
There’s also the fact that multiple directors – including the CFO and the Chair – sold stock in April (at much lower prices). This could indicate they didn’t think the valuation was justified .
One other issue to be aware of is that the average analyst price target is only 292.5p. That’s about 23% below the current share price.
Time to lock in profits?
Now, don’t get me wrong – this is a great company. I’ve been really impressed with its ability to land major deals with SpaceX. And taking a long-term view, it could turn out to be a great investment from here. After all, the space industry’s still in its infancy.
But with the stock up more than 100% year to date and 200% over 12 months, I do think it might be time to consider locking in some profits. Because it could come plummeting back to earth (it’s already getting volatile) if growth slows.
I’ll point out that one thing I often do in these kinds of situations is sell half my position. That way, I can still profit if the stock continues to rise but I also have capital to put into other opportunities.
Should you invest £5,000 in Filtronic Plc right now?
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Edward Sheldon has no position in any shares mentioned
