Shares of cellphones-to-satellites communications company AST SpaceMobile (ASTS 2.99%) jumped 5.3% through 12:30 p.m. ET on Wednesday after Scotiabank analyst Andres Coello initiated coverage of the stock with a sector outperform (buy) rating last night.
The Scotiabank analyst put a $7.50 price target on AST stock, implying that over the next 12 months, the shares should more than double over their current price of $3 and change, as reported today on StreetInsider.com.
Why Scotiabank thinks you should buy AST SpaceMobile stock
Why is Coello so optimistic about AST — which is, after all, down 56% over the past year, lost $64 million last year, has no profits and no revenue either? Basically, because the analyst feels AST is the top dog and first mover in this new industry of direct-to-cell (DTC) telecommunications via satellite.
As recently as three years ago, this concept was so new, so unproven, and its underlying technology so mysterious that I concluded AST stock was entirely uninvestable. But in the years since, AST has repeatedly proven its capability to make the tech work, such that everyday, off-the-shelf cellphones (i.e., not specialized “satellite phones”) can now call each other by bouncing their signals off of AST satellites.
How much is AST SpaceMobile stock worth?
Admittedly, AST is not yet in a position to deploy this technology widely on a commercial basis. The company needs more satellites in orbit for this to happen, and this is going to require a lot of money — much more than the $60 million, net of debt, that the company currently possesses.
However, if AST can raise the necessary funds and reach commercial viability, Coello estimates that the company might eventually generate positive free cash flow from this business. Valuing the stock as a kind of hybrid “telecom, satellites, wireless equipment vendors, and towers” business, and factoring in a projected growth rate and ultimate size the market might reach, the stock should be worth as much as 136% more than what it currently costs.
There’s a fair amount of guesswork included in this valuation, granted. But according to most analysts who follow the stock, 2024 is the year AST will first begin generating revenue from this project (about $69 million, according to data from S&P Global Market Intelligence). If AST can hit that mark, then positive profits could arrive by 2026, and positive free cash flow by 2027.
It will probably take another two to three years to find out if Scotiabank is right about AST’s valuation. But our first clue as to whether it might be right will arrive this year.
Editor’s note: A previous version of this article contained a wrong last name for Andres Coello.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
