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AST SpaceMobile Stock: Buy, Sell, or Hold?

Motley Fool - Wed Apr 17, 3:40AM CDT

AST SpaceMobile(NASDAQ: ASTS) reached an important milestone in 2023. In 2022, it put a functioning cellular broadband satellite into space, with testing in 2023 proving that the satellite could actually do what management said it would.

In effect, AST SpaceMobile has shown it is capable of competing with Elon Musk's much bigger and more established Starlink. Is that enough to make this company a buy, or are investors better off avoiding it until it's further along in its development?

AST SpaceMobile has a different model

Musk's privately held Starlink service owns a network of satellites that provide global broadband cellular and internet service. This company, which is a division of SpaceX, is a stand-alone offering to which customers must subscribe.

It also involves setting up what amounts to a satellite dish to connect to Starlink's satellite array. AST SpaceMobile wants to compete with Starlink, but it is taking a vastly different path.

A road sign that read volatility ahead.

Image source: Getty Images.

First off, AST SpaceMobile's service works with normal cell phones; there's no need to buy and set up any other hardware. Second, and perhaps more important, the company is trying to partner with cellular providers, which would make its service an add-on offering to their services.

This is notable because it allows the company to tap into an existing customer base while allowing the mobile carriers to compete with Starlink without having to build their own individual services. And it gives AST SpaceMobile access to corporate cash to help fund the development of its satellite array.

This is where things get tricky. AST SpaceMobile has only one test satellite in space right now. It is working on five more, but it isn't a functioning space-based cellular broadband service in any real sense even though the company has proved it can provide such a service.

In other words, a lot more spending must take place before AST SpaceMobile can actually compete with Starlink. So what should investors do?

Sell AST SpaceMobile?

When you step back and look at AST SpaceMobile, it still doesn't have a functioning service, which means it is still just a big idea. Getting from this point to being able to support real customers, not just testing, will require launching more satellites.

The next five won't get to a launch site until July or August. And then they will have to wait for a launch window. Meanwhile, it will require a lot more than five satellites to have a fully functioning service.

Investing now will mean being very early. And even good ideas don't always work out as planned. For example, AST SpaceMobile spent $168 million in 2023 on engineering, research and development, and general business costs. It didn't generate any revenue and ended the year with just under $86 million in cash on its balance sheet.

ASTS Cash and Equivalents (Quarterly) Chart

ASTS cash and equivalents (quarterly); data by YCharts.

It was able to raise more capital in the first quarter of 2024. But while the company isn't going to imminently run out of money, it still ended the first quarter with only about $211 million in cash. Given the spending rate, that won't last very long.

There's a material risk that AST SpaceMobile falls short of its big ambitions. Moderate and conservative investors will probably want to watch this story unfold a little further before jumping aboard.

Buy AST SpaceMobile?

The only reason to buy AST SpaceMobile at this point is if you believe that it will eventually be able to create a space-based cellular broadband network. As noted, there's still a lot that has to be done before that can happen, but investing now will mean getting in on the ground floor.

That's no small statement -- the stock is some 85% below its high-water mark. Sometimes getting in early means having to deal with a lot of volatility, noting that the company hasn't even been public for three years yet.

ASTS Chart

ASTS data by YCharts.

That said, the ability to raise capital in early 2024 is notable. Effectively, AST SpaceMobile tapped the cellular providers it plans to partner with over the long term, getting capital investments from big players like AT&T(NYSE: T) and Vodafone(NASDAQ: VOD).

If you assume that the company can continue to raise cash in this manner, there's no particular reason to think it won't be able to continue funding its huge capital spending needs. However, that's a decidedly glass-half-full point of view.

Hold AST SpaceMobile?

The reason to hold AST SpaceMobile is basically the same reason that you would buy it. You believe that eventually it will be able to offer the service it says it wants to build.

That said, if you bought the stock soon after it went public via a merger with a special purpose acquisition company, you could be sitting on material paper losses. If you sold the stock, you could use the loss to offset gains elsewhere in your portfolio.

However, if you sell AST SpaceMobile now, will you be willing to buy back in later when the service is really up and running? What gains might you give up between now and then, since Wall Street might just reward the company with a higher price once it starts generating some revenue?

It has a deal with the U.S. government that it expects will start producing revenue in the first quarter of 2024. Indeed, it seems like the company could be at an important turning point, and selling now would mean potentially missing out on the company's success.

AST SpaceMobile is not for the faint of heart

If you own AST SpaceMobile, you know that it requires a strong stomach to be an investor in a company that is more of a big idea than a fully functioning business. If you are considering buying it, don't go in without considering the very real possibility that the company won't succeed.

This is a stock that only the most aggressive investors will want to own, even though the space-based cellular broadband service it is trying to build is quite exciting to think about. All in, most investors will probably want to wait for the company to achieve some more milestones (like a fully operating service) before buying in.

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.

Paid Post: Content produced by Motley Fool. The Globe and Mail was not involved, and material was not reviewed prior to publication.

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