The stock chart of Maxar Technologies (TSX:MAXR)(NYSE:MAXR) is just plain hideous. Shares collapsed around 95% from peak to trough, destroying the wealth of many investors who stood by the name as it continued its downward spiral into the abyss.
Last year, short-sellers at Spruce Point Capital Management called the company a fraud, noting that the stock could continue to get obliterated, sending shares of the already beaten-up space play down even further.
While such short-seller allegations are concerning, they’re to be taken with a fine grain of salt. Short-sellers aren’t looking after the best interest of everyday investors, after all.
Yes, Maxar’s management team made some horrible decisions in the past, including taking on too much debt to finance ridiculously expensive acquisitions (like DigitalGlobe). But the stock has been punished very harshly, and the company isn’t necessarily what you’d deem as a fraud.
Given the perfect storm of adverse events, one could argue that Maxar stock has been punished too harshly, opening a window of opportunity for deep-value investors able to stomach a bit of near-term pain for potentially outsized gains over time.
Could Maxar’s recovery get disrupted?
While the rise of aerial drone imagery could have the potential to disrupt Maxar’s satellite imagery business in the distant future, I don’t think such a scenario should be a concern to investors.
Sure, UAVs could provide higher resolution images than satellites from outer space, but when it comes to real-time defence and intelligence, Maxar’s space tech remains far more practical, at least for the foreseeable future.
The company continues to win contracts with major clientele, including the International Defense and Intelligence service and the U.S. National Geospatial-Intelligence Agency, both of which bode well for the firm as it looks to bounce back.
So, don’t think for a second that Maxar’s satellites will become just another piece of space junk because UAVs can produce high-resolution images too.
High reward, high risk
The real problem with Maxar is that it could realistically go bankrupt should worse come to worst.
The debt-load could get the better of the company, but should management be able to pull it off; there is astronomical upside for the space company whose stock is now absurdly cheap now based on traditional valuation metrics.
At the time of writing, the stock trades at 0.2 times sales, 0.6 times book, and 3.1 times trailing earnings. If management can cut down on its mountain of debt and continue winning big contracts, shares could prove to be severely undervalued.
But given the risk that investors could lose their shirts, even at today’s depressed multiples, Maxar remains a highly speculative play that’s only suitable for fearless young investors who are no strangers to volatility.
Continued contract wins are encouraging, but the balance sheet remains in rough shape with a ridiculously high debt-to-equity ratio of 4.5. So, investors need to make sure they don’t bet the farm on the rebound candidate even though various sell-side analysts see ample upside over the intermediate-term.
Stay hungry. Stay Foolish.
