Filtronic (LSE: FTC) could be the posterchild for penny stock investing. In just two years, this AIM-listed share has gone from 11p to 116p, making it a 10-bagger for eagle-eyed investors.
I’m partial to a small-cap stock, though I tend to keep them limited in number and size. Unfortunately this one flew completely under my radar until a few months ago.
But with strong commercial progress and a lucrative contract with SpaceX in place, Filtronic stock looks like it could move even higher in the years ahead. So should I invest? Let’s take a look.
SpaceX boost
Filtronic designs advanced components that enable high-speed wireless communication, supporting applications in 5G infrastructure, aerospace, defence, and satellite systems. While the firm’s been around for decades, it was orders received from Elon Musk’s SpaceX in 2023 that proved transformational for the business.
In April 2024, this partnership was made public, with Filtronic unveiling a strategic agreement to supply E-band Solid State Power Amplifiers (SSPAs) for SpaceX’s burgeoning Starlink satellite constellation. SSPAs boost signal strength, helping Starlink provide fast, reliable internet from space to ground.
This announcement put a heavy-booster rocket under the Filtronic share price!
Growing satellite constellation
There are a few things I find interesting about this from an investing standpoint. The first is that SpaceX is highly vertically integrated, typically producing most components in-house. So Filtronic’s selection as a supplier is a strong endorsement of its cutting-edge communications technology.
Second, the Starlink network already consists of more than 7,200 operational satellites, but the total number could potentially expand to 40,000! So there could be many years of repeat orders ahead, assuming Filtronic fulfils them satisfactorily.
Finally, it’s worth mentioning that Filtronic has issued SpaceX warrants equivalent to 15% of share capital, with 5% already vested. So there’s a commercial alignment of interests here.
Surging sales
The impact on the company’s financials has already been dramatic. Revenue has grown from £16m in FY2023 to an expected £52m in FY2025. Profits have grown more than tenfold over this time.
In recent days, management said revenue growth’s currently stronger than market expectations. However, I note the forward price-to-earnings multiple here for FY2026 (starting June) is around 39. Arguably then, the market’s fully up to date with the promising growth story unfolding here.
Moreover, a key risk is high customer concentration with SpaceX. That relationship is pivotal to the firm’s ongoing growth, even though Filtronic has done well to also bag contracts with BAE Systems, QinetiQ, and others.
Should I buy Filtronic stock?
This is an interesting company and one I wish I’d spotted earlier (for obvious reasons). I think the next few years look very bright as management targets over £100m in sales and a more diverse spread of customers.
The opportunity in European defence markets appears sizeable due to many NATO members committing to re-arm after decades of reliance on the US for security. This is an area Filtronic already knows well.
However, while I also like this stock as an indirect play on SpaceX’s growth, I can’t help feeling that I’ve missed the boat on the big gains.
I already have indirect exposure to SpaceX through Scottish Mortgage Investment Trust. I’m going to keep it that way for now.
