Sunday, 12 May 2024

Should You Buy AST SpaceMobile While It’s Below $3?

by BD Banks

Shares of AST SpaceMobile (NASDAQ: ASTS) are down over 80% from their peak. Over the past year, the stock has lost around 50% of its value. This is a high-risk investment, but with a sub-$3 share price, some investors might be interested in bottom-fishing. Is it worth it?

What does AST SpaceMobile do?

At this point in time, AST SpaceMobile doesn’t really do anything from a business perspective. That may sound harsh, but in 2023 the company generated no revenue. But it managed to spend $78.8 million on engineering services, $47.5 million on research and development, and $41.6 million on general and administrative expenses. Needless to say, the red ink flowed liberally in 2023, with the company posting a per-share loss of $1.07.

<div>Should You Buy AST SpaceMobile While It's Below ?</div>

Image source: Getty Images.

According to the 10K, meanwhile, the company “will incur significant expenses and capital expenditures in the future” and is “an early stage company with a history of losses and may never become profitable.” So far, it looks like AST SpaceMobile just burns through cash. That’s not necessarily a fair way to present things, but it does highlight the very material risks here.

What AST SpaceMobile is doing with all of that spending is building a space-based cellular broadband network. Essentially, it wants to partner with cell companies to provide an add-on service that will ensure cellular and broadband access globally via satellite connections. The really cool part of the story is that it works with regular old cellphones, like the one you probably have in your pocket. That is an interesting story, and more aggressive investors might find the sub-$3 stock attractive because of it.

ASTS Chart
ASTS data by YCharts.

Will AST SpaceMobile be able to build it?

The problem, which was hinted at above, is that a good story doesn’t necessarily make a good stock investment. To AST SpaceMobile’s credit, it has proven that its technology works. It launched a satellite in late 2022 that it has been successfully testing since that point. That’s been enough to get the attention of major cellular providers like Vodafone and AT&T, which have provided AST SpaceMobile with cash to further develop its business.

The company is using that money to build another five satellites. The problem is that those satellites won’t be ready to launch until at least August. And then they have to wait for a launch window before they can be put into orbit. So even at the end of 2024, AST SpaceMobile won’t be anywhere near ready to offer a full-fledged service. Buying today means buying very early in this company’s development.

A lot could go wrong, so only aggressive investors should be looking at the stock. But even if everything goes according to plan you’ll need to be careful. For starters, AST SpaceMobile isn’t the only company working on providing a space-based cellular and broadband network. It competes with SpaceX’s Starlink service, for example. It could very easily end up being an also-ran in a competitive market.

Second, the company will need to raise additional cash that will likely result in shareholder dilution. The company is pretty clear about this, too, warning that, “We require substantial amounts of capital, and we expect such requirements will increase in the future.” That means, even if the company is successful, you’ll likely end up owning less of it over time as it raises cash to build out its satellite network.

Not a good pick for most investors

All in, most investors will probably be better off waiting for AST SpaceMobile to hit a few more development milestones before even considering an investment here. Yes, the stock price is extremely low, but it is that low for a reason. Wall Street is, in effect, telling you that the risk is very high.

Should you invest $1,000 in AST SpaceMobile right now?

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool recommends Vodafone Group Public. The Motley Fool has a disclosure policy.