“The aerospace sector has advanced significantly in recent years due to the rapid progression of technology. However, similar to other sectors like biotechnology, activities in the aerospace industry incurs high risk and this is in part down to the sector still being in its infancy and not yet being fully mature. This is important to note as it means aerospace- related companies have enormous long-term growth potential,” explains Maxim Manturov, Head of Research at Freedom Finance Europe.
Early problems in the industry
“A few years ago, the space industry was stagnating. Revenues of several major players like Honeywell International, The Boeing Company, Raytheon Technologies Corporation, Lockheed Martin Corporation, Airbus SE, Safran SA, and Northrop Grumman Corporation came largely from government defense contracts. Huge barriers to entry were significantly limiting competition in the industry and consequently hampering its development. These barriers included:
– Protracted (10 to 20 years on average) and complicated development process.
– Lack of demand from the private sector.
– The need for huge initial investments and a long payback period.
Potential for growth
“Despite the difficulties, private space companies gradually began to emerge. Telecom and Internet companies began to show interest in the direction related to satellite launches – mainly for communication and space survey purposes. In addition, military and space organisations started to gradually increase their own budgets. From 2011 to 2021, the budget of NASA increased from £13.7bn to £17.25bn. Against this background, investors also began to show interest in this area. SpaceTech Analytics estimates that investments into space companies reached almost £100bn by 2020. SpaceX (£4.6bn), OneWeb (£3.5bn) and Inmarsat (£1.3bn) are leaders in terms if raised funds.
“As a result, the space industry is actively gaining momentum and the number of companies has grown significantly over the past few years. In addition, the number of segments within the industry has expanded; Space Manufacturing, Space Transportation, Satellite Communication, and Space Observation remain the main ones. Wall Street estimates the potential size of the market of satellite delivery into orbit may exceed £75bn in a few years. According to SpaceTech Analytics the potential size of the space tourism market is estimated in the range of £75bn to £220bn.
“Based on this, we have selected the most promising public companies in the space industry that have enormous growth potential, but also carry significant risks.”
Aerospace stocks to keep an eye on
Virgin Galactic Holdings manufactures state-of-the-art aerial and space vehicles and plans to develop tourist suborbital spaceflights and small artificial satellite launches. Richard Branson successfully launched the Unity spacecraft in July this year. Thanks to this, the company demonstrated its ability to launch space tourism services in the near future and as a result 600 wealthy potential customers have already booked seats at around £185,000 per ticket. Previously Branson also said that once commercial passenger flights were established, the company planned to achieve 400 flights a year and bring annual revenues to £750m.
We recommend buying the stock at $20.9 (£15.6), allocating no more than 1-2% of your portfolio to this purchase and then sell when the price reaches $32 (£23.9).
Rocket Lab is another up-and-coming company from the space industry. Established in 2006, it has already managed to launch 21 rockets into space, of which 18 were successful, send 105 satellites into orbit, and build two factories to help manufacture and assemble rockets and components for spacecrafts. Rocket Lab has been successful in establishing partnerships and contracts with major contractors in the industry. The company works closely with organisations such as NASA, US Defense Advanced Research Projects Agency, US Air Force Space Command and US National Reconnaissance Office. These successful partnerships allowed it to start generating revenue. In the first half of 2021 it posted revenues of £21.8m, up 237% from a year ago. Rocket Lab’s management estimates that the company will have revenue of £1.16bn by 2027.
We recommend buying the stock at $14.8 (£11), allocating no more than 1-2% of your portfolio to this purchase and then sell when the price reaches $20 (£14.9).
Astra Space develops launchers to send payloads of up to 500kg into orbits with an average range of up to 500 km. Most often, these are satellites that provide global communications, earth observation, weather monitoring and navigation. Since it was founded in 2016, Astra Space has built working prototype rockets and launched them, while also building its own manufacturing facility and launch pad in Alaska. The company’s management estimates the potential size of the market at more than £75bn, with more than 40,700 launches expected by 2029.
We recommend buying the stock at $10.19 (£7.6), allocating no more than 1-2% of your portfolio to this purchase and then sell when the price reaches $17 (£12.7).
“While the aerospace industry is still in its infancy this is a great opportunity to begin looking to invest in aerospace companies. As we’ve seen with Elon Musk, Jeff Bezos and Richard Branson, the future of travel and tourism, along with communication and defense, is space, so it’s essential to look into investing in this industry if you want to see long-term investment growth.”