A Guide on How to Invest in Space Stocks

Invest in Space Stocks

Tired of investing in earth? Look no further!

With advances in technology, falling launch cost, combined with the enthusiasm of the market in space exploration, the space industry does seem like the place to be! The question remains what will drive the space industry forward.

As an introduction to the industry, we explore briefly on the space industry, how to invest in space stocks and how to make money in space. Additionally, we conclude by highlighting the space stocks and ETFs investors should focus on, as well as the considerations before you invest in space stocks.

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    Brief overview of the space industry

    The space industry is valued at ~$400 billion today and is projected to grow at a CAGR of ~5.5% going forward.

    Here’s an overview of the global space industry in 2016. Whilst the diagram may be dated, it still serves as a good starting point to understand how the space industry comes together.

    Space industry overview
    The global space industry overview. Source: Bryce Space and Technology.

    Globally, based on our estimates, there are currently just under 50 nations with government space budgets, with US is pole position by far, followed by China, Europe and Russia.

    Global space agency budgets
    Global space budgets by nations. Source: 2019 public domain, latest available data.

    NASA remained the best funded space agency globally. Over the years, China has expanded its space budget exponentially, especially after its successful moon mission in January 2019. While US’s space budget has reduced over the years, we saw China’s budget doubled since 2013.

    Interestingly, from a % of GDP perspective, Russia has the highest allocation to its space budget in 2019, among the top space nations.

     

    Global space budget by % of GDP 2019
    Global space budgets as a % of 2019 GDP. Source: Public domain.

    How to invest in space stocks

    The space industry is extremely varied and encompasses various verticals. Before we learn how to make money in space, let’s review the four key segments we think are likely to bring future opportunities in space.

    Space tourism / space flight

    This is the idea of selling suborbital flights, where passengers can experience zero gravity space travel. This is pretty much similar to typical air travel, but in space. However, the concept remains fresh to many investors. Virgin Galactic (SPCE), the first publicly traded company focused on flying people to space, is reportedly charging as much as $250,000 per ticket.

    Other companies that are in this space includes SpaceX and Blue Origin, backed by Elon Musk and Jeff Bezos, respectively. While the industry has a long way to go in finding its business model, the path to profitability may require extreme patience by investors.

    More recently, Momentus (SRAC currently, or MNTS), a “last mile delivery” service for spacecraft, is the latest space stock to join the market via SPAC, with the deal expected to close early 2021.

    Satellite communications

    Perhaps the more well-known segment of the space ecosystem is satellite communications. This broad category includes ground systems, communications equipment, video etc. In fact, satellite communications offers the highest number of pure-play public companies.

    Companies such as Iridium Communications Inc. (IRDM), operator of the iridium satellite constellation and Dish Network (DISH), which owns and operates direct-broadcast satellites, are just a handful of examples in this space. Other services in this space includes internet, satellite phones and other mobile communications services.

    Being one of the most mature segment of the space ecosystem, uncertainty nevertheless persist. We are seeing more players getting into this segment, however. For example, Amazon’s Project Kuiper / Kuiper Systems receives FCC approval for its initiative to build a low earth orbit (LEO) satellite constellation capable of proving reliable and affordable broadband services across the world.

    Space imagery and data analysis

    Imagery and data analysis is the smallest segment among these segments. Despite being smallest in market value, investments in these companies over the years, both public and private, seem to suggest an exponential growth in the medium term. Publicly traded companies that operates in this segment includes Maxar Technologies (MAXR), Garmin (GRMN) and Trimble (TRMB).

    National security in space

    Established in September 1982, the independence of the United States Space Force (USSF) under the 2020 National Defense Authorization has spurred debate about investing in national security space. As a result, there is an inherent demand for building and launching both commercial and military space crafts.

    Having said that, we believe investing in this sector introduces a different level of risk due to its national security concerns globally. Today, many commentators highlight the militarization of space to be the next battleground for the future generations.

    Companies involves in this segment includes Ball Aerospace (BLL), Honeywell (HON), L3Harris Technologies (LHX), Boeing (BA), Raytheon (RTX), Northrop Grumman (NOC).

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    Space stocks investable universe

    The two key ways of gaining exposure into the space sector are Space ETFs (we listed four below: Procure, iShares, SPDR and Invesco) and publicly listed space stocks.

    Here’s our space stocks investable universe. Please drop us a comment if we missed anything.

    Things to consider before investing in space stocks

    The concept of investing in space is still new to many of us. With its addressable market expected to be a trillion industry in 2040, there is no denying its significant growth potential. Imagine where the space travel industry would be if it is as economical as typical air travel today.

    Despite the potential, we think investors will need to address a few key points before investing in space stocks.

    First, investment time horizon. The space industry is arguably still in its infancy. Consequently, investors should consider the appropriateness of such stocks whether it fits their investment objectives. For one, investing in this sector requires a long time horizon of >10 years to realize its true potential, in our view.

    Second, identifying winners, both segments and stocks. At present, it is unclear that which subsector within the space industry will be a blockbuster or flop. Having said that, communications and broadband services as well as satellites seems like a natural extension of Telcos.

    Finally, the idea of investing in concept stocks. We wrote about concept stocks previously and highlight its risks. Typically, stocks in this category are loss-making, hence, investors need to get comfortable with owning such stocks. For example, Tesla is arguably profitable (with regulatory incentives) 17 years after its founding in 2003. It goes without saying that no dividend (or minimal) is expected for the foreseeable future.

    Summary

    All in all, the pandemic has brought to light segments of the market that we have not previously consider as viable investments. Investing in space stocks remains an elusive concept to many to grasp today, we encourage keen investors to start building up knowledge in the space before the whole world is talking about space stocks.

    Nevertheless, as interesting and risky as it is, we like the risk-reward trade off in the sector today, in broad terms. We look forward to more detail stock analysis from our writers within the sector in due course.

    Till then, to infinity and beyond.

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