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When scouting for high-quality smaller stocks across the AIM, the name of the game is growth. While these smaller companies come with lots of volatility and risk, the chance of them multiplying tenfold times or more is highly enticing. That’s why Filtronic (LSE: FTC), a high-tech British manufacturing firm serving the fast-growing defence and space industries, has caught the eye of many an investor lately. Up 10 times since 2023, the firm’s £296m market cap is only a stone’s throw from the FTSE 250 (smallest member ASOS has a £335m market cap).
With Filtronic fresh from signing an eye-catching contract with Elon Musk’s SpaceX, could the shares be a screaming buy for 2025 and beyond? Let’s find out.
What does it do?
To start with, why does Filtronic even do? The Durham-based firm designs and manufactures wireless communications components across the RF, microwave, and mmWave bands. To put its operations in more simple terms? Its products make it easier to send reliable communication signals between things that are sometimes travelling very, very fast.
Filtronic’s high-performance tech has military applications (deals already made with BAE Systems and Leonardo). Its state-of-the-art receivers and amplifiers are useful too in space tech (deals made with the European Space Agency and SpaceX). The eye-catching deal with Elon Musk’s company in August this year helped along a share price that is up 81% year to date.
SpaceX links
That £47m contract with the Starlink operator reveals even more to the company than perhaps first appears. Compare Filtronic’s price-to-earnings ratio of 23 with the forward price-to-earnings ratio of 50. The firm relies heavily on the orders coming in and with only a few massive clients, there is large customer concentration risk here.
The silver lining to this cloud is that a few big orders might propel the share price to new heights. Starlink has a total addressable market of, well, the entire world. What if economies of scale bring the Starlink service below the price of a regular wired broadband? Filtronic shares also serve as a proxy for anyone excited about the future of SpaceX or Starlink. Those shares aren’t available to buy on stock exchanges at present.
In case it isn’t obvious, this is a fairly speculative stock with a long time horizon. Those looking for reliable cash from sturdy dividend payers need not apply. But for those who like a growth aspect to their portfolio and are bullish on the nascent ‘space economy’ and its potential? Filtronic could be one to consider. I count myself in that camp and took the plunge on buying the shares recently. If we are truly headed for the stars, then I might one day be looking back on a very prescient decision.
