Trimble, Virgin Galactic and AeroVironment: three space stocks to watch

The war in Ukraine has shone a spotlight on the importance of space technologies for providing defence and keeping lines of communication open. But despite renewed interest, this remains a volatile industry, with two of the leading ETFs covering the sector down by more than 10% each in the year-to-date.

Investors have outer space on their minds — and that’s because the Earth is a bit of a miserable place to be right now. At least, that’s the belief of Andrew Chanin, CEO of ProcureAM, who says one knock-on effect of the war in Ukraine is governments putting money into their intergalactic capabilities.

“This isn’t quite a moon-landing moment, but the war is educating people and encouraging governments around the world to invest in space,” he said, reported Business Insider.

Other factors painting an encouraging picture for the future of the space industry is the increasing importance of satellite broadband, which could contribute up to 50–70% of the industry’s growth, according to a Morgan Stanley report in July 2020. The bank expects the industry to be worth as much as $1trn by 2040, up from over $400bn in 2020.

However, it’s an industry that carries many risks — with a fair few companies working on speculative technologies. Procure’s Space ETF [UFO] is down 11.6% in the year-to-date to 22 April, while ARK Invest’s Space Exploration and Innovation ETF [ARKX] has fallen by 15.5%.

Here, we take a look at three space stocks worth watching, all tackling the industry from different angles.

Trimble is ARK’s top space industry holding

This California-based business makes Global Navigation Satellite System (GNSS) receivers, which are required for space flights to take place.

It is also the top holding in the ARK Space Exploration and Innovation ETF, with a 9.27% weighting as of 22 April. In June 2021, Cathie Wood’s firm purchased 220,701 shares of Trimble [TRMB], then valued at around $18m. The firm’s share price has fallen 18% since then.

In 2021, revenues from Trimble’s geospatial segment rose 27% overall, and the company says that more than 70% of the top 100 geospatial companies now use its products and services.

But while its products can be used in the space industry, this is far from Trimble’s focus — in fact, in its Q4 2021 investor presentation, the word ‘space’ does not even appear. For investors looking to get into the space stocks race this is a good thing, as it means Trimble is insulated from the risk that space experiments will not work out because it generates its most meaningful revenues elsewhere. In 2021, Trimble posted revenues of $3.66bn, up 16% year-over-year.

Virgin Galactic capitalises on the growing space tourism market

Founded by Sir Richard Branson in 2004, Virgin Galactic [SPCE] is hoping to become a pioneer in space tourism, and has already sold 700 tickets (priced between $250,000-$450,000 each) for future voyages outside of the Earth’s atmosphere.

These flights are yet to be scheduled, but in October, the company said it hoped to be running monthly shuttles into space by the end of this year. Analysts say that if the company achieves this milestone, it will start to generate some meaningful revenues.

According to BIS Research, the sub-orbital space tourism market — which Virgin Galactic operates in — is expected to be worth $396.6m by 2031. Virgin Galactic’s competitors include Jeff Bezos’s Blue Origin and Elon Musk’s SpaceX, neither of which are publicly listed.

Virgin Galactic’s share price is currently languishing, after hitting an all-time high in June 2021. On 22 April, it closed at $7.99, 86% below its 52-week high of $57.51.

AeroVironment stocks continue to surge

AeroVironment [AVAV] is a defence company that makes unmanned vehicles such as drones, helicopters and tanks. It is also working with Nasa to develop the Ingenuity helicopter, which in April 2021 successfully landed on Mars.

The Nasa project has seen AeroVironment lend its expertise to lightweight helicopter development.

Between 24 February — the day Russia invaded Ukraine — and 22 April, the company’s share price rose a whopping 39%. AeroVironment’s drones have already been put to use by Ukraine in the war, and last Wednesday, the company announced that it had secured a $20m contract to supply its hand-launched drones to the country.

In March, analysts at Canaccord Genuity raised their rating on AeroVironment stocks from ‘hold’ to ‘buy’, and also upped their price target to $85 from $64. Royal Bank of Canada also recently raised its price target to $70 from $65. With the stock currently trading above these levels, investors are likely still waiting for a buying opportunity.