Filtronic (LSE: FTC) has been on an almighty run lately, having risen 82% year to date to reach 137p. But the two-year gain is even more eye-popping, as this was a penny stock trading for just 13p back in June 2023.
So that makes it a 10-bagger over this period!
However, the Filtronic share price fell as much as 10% on 6 June. What caused this? And should I buy the dip?
Game-changing SpaceX partnership
Filtronic designs and manufactures high-frequency communication products for various sectors, including telecommunications, aerospace, and defence. Its products include E-band transceivers, tower-mounted amplifiers, and other radio frequency (RF) components.
Over the years, the firm has secured contracts with the likes of BAE Systems, QinetiQ, and the European Space Agency. However, it was a strategic partnership with SpaceX announced last year to supply specialist equipment for the Starlink satellite constellation that sent the stock surging.
In February, Filtronic secured its largest production order from SpaceX, valued at $21m, to be fulfilled over the next couple of years. And this gave the firm confidence that it would beat previous market expectations for FY2025 and FY2026.
Looking ahead, the company should also have an attractive pipeline of growth opportunities in the European defence and satellite communications markets.
Enter Musk vs Trump
The founder of SpaceX is, of course, Elon Musk, and he’s just fell out spectacularly with President Trump. I won’t rehash the soap opera-like details here, as they’re widely available elsewhere. But Trump did threaten to terminate federal contracts for Musk’s enterprises, including SpaceX.
This prompted Musk to announce the immediate decommissioning of SpaceX’s Dragon spacecraft, which is critical for transporting astronauts and cargo to the International Space Station.
What has any of this got to do with Filtronic? Well, Reuters reports that around $22bn worth of federal contracts could be at risk. If so, SpaceX’s budget and the continued pace of the Starlink build-out could be jeopardised. That may lead to reduced need for Filtronic’s components in the years ahead.
Given that Filtronic has scaled up manufacturing and R&D to meet future demand, it might face excess capacity and margin pressure. In this situation, sentiment for Filtronic shares could sour, sending them much lower.
Now, this is all just theoretical. As I write, Musk has retracted the kneejerk Dragon capsule decision, and it even seems like there might be some sort of public reunion with Trump. But literally anything could happen from this point onwards.
Should I buy Filtronic stock?
Weighing things up, there doesn’t appear to be any immediate threat to Filtronic. And the share price pullback isn’t that severe in the grand scheme of things. As I write, it’s just 6%.
The company’s revenue for FY2026, which has just started, is forecast to be £50m. That would be double what it was in FY2023, signalling very robust growth.
However, this stock is currently trading at around 45 times forward earnings, and there’s no dividend. Much of the company’s current value rests on the SpaceX partnership, which could be a double-edged sword if anything goes wrong there.
Investors considering the stock should be mindful of the relatively high valuation and customer concentration risks. While I like the SpaceX-related growth story here, I’m currently not looking to buy any shares.
