AST SpaceMobile (NASDAQ:ASTS) stock is becoming hot once again. In the past month, shares in this developer of a space-based cellular network have zoomed more than 75%. But, after rallying out of single-digit price levels, it may take time for it to rocket higher once again.
Why? This “future of telecom” play may have tremendous long-term upside potential. But, like other space stocks, the near-term will likely remain uncertain. Just like with Virgin Galactic (NYSE:SPCE), investors are pricing it on its future prospects, not its current results.
This could mean high volatility, which this stock has already seen, after the closing of the SPAC (special purpose acquisition company) merger back in April. When the deal was first announced, the stock (then known as New Providence Acquisition) went on a multi-month rally. It soared from around $10 per share in December, to as high as $25.37 per share in February.
But, during the spring SPAC sell-off, this was one of the hardest hit, falling to as low as $6.96 per share. Could this happen again? Recent analyst coverage, while bullish, concedes there’s a chance its plans fail to take off. Yet, don’t view that as a reason to stay away, or even wait for shares to retouch their lows. Treat it like the moonshot it is, but consider locking down a position at today’s prices.
ASTS Stock: Long Runway For Gains, But Very High Risk
Some may chalk up AST SpaceMobile’s recent rebound to another case of “meme stock madness.” But, Reddit’s r/WallStreetBets subreddit really can’t take credit. There’s only been moderate chatter about it on that platform. As InvestorPlace’s Brenden Rearick wrote Jun 30, what’s really been moving its needle has been an extremely bullish call from analysts at Deutsche Bank.
The investment bank’s sell-side analyst team initiated coverage late last month, giving ASTS stock a “buy” rating, and a $35 per share price target. At the time, that amount was 243% above its trading price. However, Deutsche Bank’s research note concedes that, with high upside potential, comes high amounts of risk.
That is, its price target is an average of several possible scenarios. Best case scenario? If AST SpaceMobile successfully executes the launch of its satellite network, which is unique in that this network could (in theory) directly connect to smart phones, shares could soar to prices well above $35 per share. Worst case scenario? If this disruptive technology fails to work as intended, or at all, shares could eventually have zero value.
Putting it simply, either it takes off the launching pad, or it doesn’t. This may point to waiting for some of its recent buzz to cool before buying. Yet, with the risk of missing out getting in “early” with this stock, paying up now may be the better move when it comes to gaining exposure.
Don’t Wait for a Double-Bottom That May Not Happen
The Deutsche Bank rating may have fueled a bounce back. But, considering that this company remains years away from turning its high-concept plans into tangible results, isn’t there a chance this will dip back to single-digits once again?
Not necessarily. Why? Mostly, because its sell-off last spring may have had more to do with the “SPAC sell-off,” than a reversal in investor sentiment for its prospects. Earlier this year, as retail traders piled into SPAC stocks, hoping to make fast profits, things became very overheated.
But, once this bubble burst, retail money fast headed for the exits, resulting in the tremendous declines, such as the ones seen with ASTS stock between February and April. Chances are, this roller coaster ride is not going to repeat itself.
In other words, trying to “time” the most opportune entry point may not be your best move. Sitting on the sidelines until its most recent buzz cools, and shares dip back to $10-$12 per share may make sense. Yet, holding off for it to make a double-bottom, which may not happen? You may miss your chance to buy, ahead of its possibly epic liftoff.
Bottom Line: Given its Upside Potential, Consider it a Risk Worth Taking
Based on AST SpaceMobile’s SPAC merger investor presentation, its possible recent analyst coverage could be understating its potential. By 2030, annual revenues may reach nearly $16.5 billion. With margins above 90%, EBITDA nine years out could be a staggering $16.3 billion. Even at a low-ball valuation, results like this would make it worth at least $100 billion. Compare that to its current market capitalization ($2.4 billion).
Risk remains high, as its technology could fail to deliver, sending shares cratering towards zero. There may only be a moderate chance of hitting its long-term projections. Even so, hopping into ASTS stock now, after its pop, but while it’s still on the launching pad, may be a high risk worth taking.
On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, a contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.
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