AST SpaceMobile's (NASDAQ: ASTS) stock price soared nearly 380% over the past 12 months. The satellite designer and manufacturer, which went public by merging with a special purpose acquisition company (SPAC) in April 2021, impressed the bulls as it got ready to launch its first commercial satellites and struck two major deals with AT&T and Verizon Communications.
Even after that massive rally, AST SpaceMobile's stock price remains about 16% below its all-time high from February 2021. Should investors buy this high-flying stock before it soars even higher?
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A brief history of AST SpaceMobile
AST SpaceMobile was founded in 2017. It's building a cellular broadband network called a "satellite constellation" in space to fill the coverage gaps in traditional satellite networks. It says this network will be the "first and only" cellular broadband network in space that can be directly accessed by everyday 2G, 4G, and 5G smartphones.
AST's BlueWalker 3 prototype satellite, which was launched in September 2022, is currently the largest commercial communications array in low earth orbit (LEO). It successfully completed tests for two-way voice calls using the satellite last April and achieved 4G download speeds of more than 10 megabits per second (Mbps) last June. Last September, it achieved 5G download speeds of approximately 14 Mbps.
AST plans to launch its first five commercial Block 1 BlueBird (BB) satellites in September. A successful launch, which would mark its first major step toward the expansion of its satellite constellation, could be a major catalyst for its stock.
Those plans are already attracting a lot of interest from big tech and telecom companies. This January, AST secured $206.5 million in fresh financing from AT&T, Alphabet's Google, and Vodafone. AT&T and Verizon both signed commercial agreements with AST in May.
Resetting the market's expectations
Before AST went public, it boldly claimed its revenue would reach $181 million in 2023, $1.07 billion in 2024, and $2.63 billion in 2024. However, the company didn't generate any meaningful revenue in 2023, and analysts only expect it to generate $16 million in revenue in 2024. Assuming AST successfully launches its first commercial satellites and expands its network, analysts expect the company to generate $142 million in revenue in 2025.
With an enterprise value of $2.8 billion, AST still looks expensive at 175 times this year's sales and 20 times next year's sales. It also isn't expected to come anywhere close to breaking even over the next few years.
Furthermore, AST needs to prove it can compete against SpaceX's Starlink, which already provides space-based broadband coverage in 80 countries. T-Mobile already partnered with Starlink two years ago, but AST's support for lower bands (which Starlink doesn't support yet) seems to have helped it win over AT&T and Verizon.
How much higher can AST SpaceMobile's stock soar?
In a best-case scenario, analysts expect AST's revenue to surge to $811 million in 2026. According to Business Research Insights, the global LEO market could grow at a compound annual growth rate (CAGR) of 21.4% from 2024 to 2032.
If AST matches analysts' expectations for 2026 and continues to grow its top line at a CAGR of 20% through 2032, it could generate $2.4 billion in revenue by the final year. If it's trading at a more reasonable 10x sales by then, its enterprise value could grow nearly 760% to $24 billion. Therefore, AST could still have a lot of upside potential -- but unpredictable delays, botched launches, or technical problems could easily crush its stock.
On the bright side, AST won't go bankrupt anytime soon. It ended the first quarter of 2024 with $210 million in cash and equivalents, while its low debt-to-equity ratio of 0.8 gives it ample room to raise more funds. Its insiders bought more than 11x as many shares as they sold over the past 12 months, even as its secondary stock offerings and stock-based compensation expenses increased its outstanding shares by more than 60% during the same period.
Is it the right time to buy AST SpaceMobile's stock?
AST is still a speculative stock, but its deals with AT&T and Verizon suggest it could successfully launch its first commercial satellites this year and expand its network to cover underserved regions. A successful launch in September could drive its stock even higher, but it could take years before its business stabilizes and grows into its lofty valuations.
AST's stock might be worth nibbling on right now, but I wouldn't turn bullish until it actually launches its first BB satellites.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Leo Sun has positions in AT&T. The Motley Fool has positions in and recommends Alphabet. The Motley Fool recommends T-Mobile US, Verizon Communications, and Vodafone Group Public. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
