Filtronic (LSE:FTC) is a UK growth stock that’s seen its share price increase by 184%, since February 2024.

The company develops and manufacturers radio frequency, microwave and millimetre wave technologies, which are deployed in mission-critical communications networks. Significantly, in April 2024, it entered into a strategic partnership with Space Exploration Technologies (SpaceX) for the ongoing supply of its innovative solid state power amplifiers.

By mid-morning today (10 February), Filtronic’s stock had soared 14%, after it announced another deal — worth £16.8m over the next two years — with Elon Musk’s company. On disclosing the order, the company said it’ll exceed current market expectations for both revenue and profit in its next two financial years.

Not surprisingly, investors were impressed.

The news added approximately £28m to the market cap of the company.

Reaching for the stars?

For those investors looking to benefit from the renewed interest in space, there are relatively few options.

SpaceX is privately owned and although an IPO’s expected at some point, the timing’s uncertain.

A number of investment firms have stakes in Musk’s company. For example, at 31 December 2024, it was the biggest holding in the Scottish Mortgage Investment Trust portfolio. Its position was valued at £1.1bn, and accounted for 7.5% of total assets.

But Filtronic has exposure to more than just the space market. Its products are also sold into the aerospace and defence sectors.  

However, there are some risks.

Possible issues

Despite the recent rally in its share price, it’s still relatively small. With a market cap of £226m, it doesn’t have the financial firepower to withstand a prolonged downturn.

Having said that, at 30 November 2024, its balance sheet didn’t contain any debt. And it had cash of £7.2m, although this wouldn’t be enough to cover a year’s staff costs.

I’m also concerned that it’s heavily reliant on just three customers. During the year ended 31 May 2024 (FY24), these contributed 84% of revenue. Although not disclosed in its accounts, I don’t think it’s hard to work out what the biggest one is. It accounted for 48% of revenue in FY24. With today’s press release, I suspect this concentration is likely to increase further.

What’s it worth?

But valuing a company like Filtronic can be difficult. As it’s growing fast, investors are more likely to pay a premium.

Prior to today’s announcement, Edison Group was expecting the firm’s earnings per share (EPS), for FY26 to be 2.93p. The stock was, therefore, trading on a weighty forward multiple of 31.7.

Based on its operating margin for the first half of FY25 (26%), the new contract could add £2.2m to Filtronic’s bottom line in each of its next two financial years. By my calculations, this would add 1p to EPS. Therefore, even with the 14% increase in the share price, the price-to-earnings (P/E) ratio has dropped to a more attractive 27.

However, I’m not going to invest in the company.

Its reliance on SpaceX is a double-edged sword. As long as the trading relationship continues, I think the company’s share price will do well. But if it were to lose the contract, I suspect it’s shares will tank as there are relatively few other customers in the sector that could replace the revenue. This is a risk that I’m not prepared to take.