With the fantastic images from the Webb telescope, interest in space is visibly increasing. That could also have positive effects on space stocks, whether it's space tourism, rocket technology, or satellites. There is plenty of choice for investors. Virgin Galactic (WKN: A2PTTF) and OHB (WKN: 593612) are shortlisted. But which stock is better now?
Virgin Galactic, the fallen angel
The price of the once hyped Virgin Galactic has collapsed over the past few quarters. Sir Richard Branson's space flight in July last year didn't help much either. The start of the commercial service was delayed - also due to corona - and tore a hole in the finances.
After repeated setbacks, July was encouragingly constructive. That gave investors confidence that the company is now on track to finally take off. According to the revised schedule, it should start in early 2023. Virgin Galactic will also have two new carrier aircraft built to join the fleet in 2025. And the manufacture of the spaceships will be located in Arizona.
So things are moving forward and the price went from around $6 to around $8. However, that is still 20% less than the typical SPAC rate paid in the run-up to the merger three years ago. In that light, the stock is still cheap now, having bounced back to $7 by Aug. 12.
The fact that the price fluctuates so much is in the nature of things. Even if the day on which Virgin Galactic will generate sales is approaching, it is still completely unclear how many paying customers can be transported into space in the future and what margins will result. There are still too many uncertain variables at play.
OHB delivers reliably
The German OHB is almost the counterpart of OHB. The Bremen-based manufacturer of satellite systems and other space technology has been continuously developing for years. And with the Group Strategy 2025, the management is also pointing out a clear way forward. From currently around 1.2 billion euros, sales are expected to increase to 1.5 billion euros with increasing margins. That makes sense.
As of June 30, the order backlog was over EUR 1.8 billion and the prospects are good that large orders will continue to come. After all, OHB not only addresses the public space agencies, but is also positioning itself better and better as a partner of the private space industry. To this end, OHB is working on expanding its competencies, both in terms of breadth and depth.
By investing in downstream activities, OHB also strengthens its recurring revenue so as to be less dependent on one-off orders. Combined with its solid profitability, unlike Virgin Galactic, there is no need to worry about the future of this company.
Which stock is more interesting now
It's a very unequal duel. Down-to-earth versus hype, profitability versus cash burn. However, it cannot be said in general which ones share better is.
For those who typically rely on established chemical, telecommunications and automotive groups, a share like OHB is a wonderful addition. Without taking any particular risks, you can ensure more diversification and at the same time rely on some exciting technology trends. And that at a price-to-sales ratio (P/S) of 0.5.
Virgin Galactic's P/S is nearing infinity, earnings numbers are deep red, and shares are valued at three times OHB. At first glance, this doesn't look very edifying. However, the company is in the process of opening up a completely new area of business.
If it succeeds, then sales could explode within a few years. That doesn't sound very plausible yet, but I would assume that management still has a few cards up its sleeve to broaden the revenue base once commercial space operations begin.
Virgin Galactic stock is therefore suitable for investors who are willing to take risks and already have several dozen other growth stocks in their portfolio. In the worst case, there is a risk of total loss. And then it would be important that the share accounts for only a small part of the portfolio. However, thanks to the strong comeback in prices and the huge market opportunity, it also offers potential for multipliers.
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Ralf Anders does not own any of the shares mentioned. The Motley Fool recommends OHB.
Motley Fool Deutschland 2022