The share price of radio frequency technology company Filtronic (LSE: FTC) has exploded higher today (24 April). As I write this, the AIM stock is up more than 44% but was up over 60% at one point.
So, what’s behind this enormous move in the shares? And is this exciting growth stock worth buying for my portfolio?
Rocketing share price
There are two reasons the shares have spiked today.
The first is that the company published a strong trading update. In this report, it told investors that, thanks to some recent contract wins, the outlook for FY24 and FY25 will exceed current market estimates.
It noted that it now expects FY25 to be “significantly ahead” of current market expectations for both revenue and earnings before interest, tax, depreciation, and amortisation (EBITDA).
The second reason – and this is what has really pumped the stock up – is news that the company has deepened its partnership with Elon Musk’s SpaceX.
In a separate update, Filtronic advised that it has entered into a new strategic partnership and commercial agreement with the space company.
This will see the group continue to supply E-band Solid State Power Amplifiers (SSPAs) to SpaceX (these convert low-power radio frequency signals into higher power ones) while also developing similar products for other frequency bands within SpaceX’s Starlink platform.
The partnership was started with an initial purchase order of $19.7m to supply E-band SSPA modules, scheduled for delivery in FY25.
As part of the deal, SpaceX will get 21.7m warrants in Filtronic. These give the space company the option to subscribe for up to 10% of the AIM company’s shares.
This milestone development in our SpaceX partnership underlines our core value proposition of high-quality engineering and operational excellence. It also provides Filtronic with the opportunity to scale manufacturing, build capability and execute our technology roadmap.
Filtronic CEO Richard Gibbs
Should I buy?
After today’s blockbuster news, Filtronic shares certainly look interesting, in my view.
I’ve said before that space, as an investment theme, has a huge amount of potential.
According to Morgan Stanley, the global space industry could be generating annual revenue of more than $1trn by 2040.
Is this AIM stock a good way to get some exposure to the space theme in my portfolio? Potentially.
The initial purchase order of $19.7m from SpaceX is huge. To put that in perspective, the company’s revenue last financial year was only £16.3m.
So, revenues and profits could be about to rocket.
Of course, this is very much a speculative stock. Right now, it’s hard to know exactly what future revenues and profits are going to look like (it doesn’t help that there are only two brokers covering it).
So, it’s hard to accurately value the company and know how much the shares are really worth.
Another issue here is revenue concentration risk. If the partnership between Filtronic and SpaceX was to come to an end, the company could see its revenues and profits take a big hit.
My move now
Given these issues, I’m going to keep the growth stock on my watchlist for now.
It does look interesting. However, right now there are safer AIM stocks I’d rather invest in.
