Filtronic (LSE:FTC) has been on one of the most exciting rides of any UK stock in recent times. Just three years ago, it was a 13p penny share. Fast-forward to now and it’s a £490m company with a 214p share price.
However, Filtronic was trading at 469p in May, meaning it’s lost over half its value in a very short space of time. Is this stock now in the bargain basement?
Rocket boosters
As a brief reminder, Filtronic designs and makes radio communication hardware used across various industries, including telecommunications, defence, aerospace, and space.
It’s the last of these that has sent the stock soaring in recent years, with investors excited about a SpaceX partnership that has led to record contract wins. Underscoring the relationship, Elon Musk’s rocket and satellite giant has also taken an equity stake in the company.
We won’t get the results for the financial year ended 31 May (FY26) until 4 August. But Filtronic has already said it expects revenue of at least £55.5m and £11.1m in adjusted EBITDA.
For context, FY20 only produced £17.2m in revenue. So the SpaceX deals — particularly last year’s multi-year $62.5m contract for next-generation GaN E-band technology for the Starlink network — have put rocket boosters under Filtronic’s financials.
Why has the stock crashed?
There appear to be a couple of reasons for the sudden sell-off. First, because SpaceX was a private company, investors who wanted exposure to its rapid growth – specifically Starlink’s expansion – couldn’t buy the stock directly.
Instead, they appeared to use Filtronic as a proxy due to its deepening relationship with SpaceX. But now investors can buy a piece of the real thing, Filtronic’s allure has faded.
Plus, the recent performance of SpaceX’s share price — down 24% inside two weeks — hasn’t helped. In this time, Filtronic has crashed 43%!
Then there were valuation concerns after the massive run-up. Recently, the forward-looking price-to-earnings (P/E) ratio had crept above 100. So the stock was due a correction after nearing 500p.
Has the selling gone too far?
The question now is, might there be real value on offer after the 53% drop? Well, there might be if Filtronic can bag further contract wins moving forward.
For the current year, management says a strong order book already covers 90% of consensus revenue (about £56m). And it continues to diversify the sales mix with further contracts across the US and European space and defence markets.
One interesting win was a second contract with a US-based customer for a state-of-the-art high-frequency module to be used on satellites. The contract is only valued at approximately $0.5m (£0.4m) for now, but getting its latest tech on more satellite payloads could open up further growth opportunities.
The award…deepens the relationship with a new technology offering for use on satellite payload, reinforcing Filtronic’s growing position across the satellite communications market.
Filtronic.
Having said that, the stock still doesn’t look a bargain today. The price-to-sales ratio is around 8.5 while the forward P/E multiple is roughly 57. Neither places Filtronic in bargain territory, in my opinion.
But for investors who reckon SpaceX is wildly overvalued, this UK stock offers space-related growth at a more sane price. I reckon Filtronic is one of many dip-buying opportunities in the UK worth exploring further.
Should you invest £5,000 in Filtronic Plc right now?
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Ben McPoland has no position in any of the companies mentioned.
