I think this UK stock has a lot of potential. Because the company serves two high-growth markets – space and defence.
On the space side, the company is winning huge deals with SpaceX. Last year, for example, it landed a contract with the space firm worth $62.5 million. This is to provide gallium nitride (GaN) E-band products (chips designed to provide higher power, improved efficiency, and greater thermal performance for satellite communications). This deal is expected to deliver ‘material’ revenues in FY2027 and FY2028.
Meanwhile on the defence side, the company has been winning a range of smaller deals. For example, in December, it won a £7 million deal with a major European defence prime for the supply of high-performance active components for a long-standing electronic sensor programme. This side of the business shouldn’t be ignored. With European countries set to ramp up their defence spending in the years ahead, Filtronic could be a major beneficiary.
Now, while this is all very exciting, there are quite a few risks here. One downside to this stock is that the valuation is high. Right now, we are looking at a forward-looking P/E ratio of about 64. That doesn’t leave any room for error.
Another issue is customer concentration. Recently, a lot of revenue growth has been coming from SpaceX. What if it decides to manufacture in-house?
Investors should also be aware that contract wins can be sporadic. So, there could easily be a period where there’s not a lot of activity and investors lose interest, sending the share price down.
Finally, profitability is volatile. For the first half of FY2026, profits were down sharply due to investments in manufacturing capabilities and an increase in staff numbers.
Management was pretty upbeat when it provided a H2 outlook earlier this month, however. “With a record order book, increasing customer diversification and the business now operating at greater scale, we have entered the second half confident of continuing our planned growth,” said CEO Nat Edington.
In light of this upbeat outlook, I think the stock is worth a look. However, I would keep position size small to minimise risk.
