This Stock Market Genius Is Betting This Space Stock Will Soar

Maxar Technologies Inc (TSX:MAXR)(NYSE:MAXR) was punished last year, but this space stock just got a huge vote of confidence in 2020.

| More on:

If you’ve seen The Big Short, you’re familiar with Michael Burry. As the founder of the hedge fund Scion Capital, he was the first investor to recognize and profit from the subprime mortgage crisis. His investment advice made clients billions of dollars. Now, Burry is betting big on a beaten-down space stock: Maxar Technologies Inc (TSX:MAXR)(NYSE:MAXR).

Maxar’s history is rife with controversy. In 2015, it was a multi-billion firm with a stock price above $100. Today, the entire business is valued at just $1.2 billion, with a share price of only $20. It appears that Burry is seizing the opportunity to buy low, accumulating millions of dollars in shares this year.

But what makes Maxar so compelling at this valuation? Why were shares pummelled in the first place? If you connect the dots, it’s easy to see why Burry loves this out-of-favour space stock.

The basics aren’t boring

Maxar is an exciting business. It’s responsible for many of our greatest space achievements. The company designs and builds critical equipment like satellites, sensors, earth imaging components, and much more. If it’s launched into space, Maxar likely makes it.

For years, this was a lucrative business. From 2000 to 2015, shares rose from $15 to $100. A $10,000 investment became $67,000, handily beating the market as well as most growth stocks.

Then the bottom fell out. In 2018, a short-seller report from Spruce Point Capital alleged that the company was engaged in aggressive accounting practices, bordering on the edge of fraud.

Management was “engaging in a massive M&A accounting scheme to cover past problems,” the report read, pulling off “one of the most aggressive accounting schemes Spruce Point has ever seen to inflate non-IFRS earnings by 79%.” As if that wasn’t bad enough, Spruce Point Capital also highlighted that the business was “burdened by $3.7 billion of rising debt with almost no cash and free cash flow.”

In response, shares fell 90%. The company was on the verge of bankruptcy, with an equity value of $500 million versus a debt load of around $4 billion.

Buy this space stock?

Burry bought Maxar stock in the first quarter of 2020. “Not only is it a new position, but it’s now his largest Canadian bet and fourth largest altogether,” notes Fool contributor Vishesh Raisinghani. What makes Burry so bullish?

First, space stocks are surging in popularity. SpaceX wants to launch astronauts into space this week. Jeff Bezos is investing billions into his Blue Origin venture. NASA also ramped up its space program spending. Virgin Galactic Holdings Inc, a space stock with almost no operating history, has a market cap three times bigger than Maxar.

This year, Maxar should generate US$1.67 billion in revenue, valuing the stock at 0.53 times forward sales. Its five-year average is double that multiple. Even the rest of the sector trades at a 60% premium.

This is a stock with a lot of baggage, but its ability to close nearly a dozen new contracts in the past year is testament to its staying power.

With its finances in better condition, the company can slowly leave the past behind it, taking advantage of the new bull market for space stocks. Expect the valuation discount to narrow completely in the years to come.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

The Motley Fool owns shares of and recommends Virgin Galactic Holdings Inc. The Motley Fool recommends MAXAR TECHNOLOGIES LTD. Fool contributor Ryan Vanzo has no position in any stocks mentioned.

More on Investing

Train cars pass over trestle bridge in the mountains
Dividend Stocks

Is CNR Stock a Buy, Sell, or Hold for 2025?

Can CNR stock continue its long-term outperformance into 2025 and beyond? Let's explore whether now is a good time to…

Read more »

engineer at wind farm
Energy Stocks

Invest $20,000 in This Dividend Stock for $100 in Monthly Passive Income

This dividend stock has it all – a strong outlook, monthly income, and even more to consider buying today.

Read more »

Hourglass and stock price chart
Stock Market

It’s Not Too Late: Invest in These TSX Growth Stocks Now

Solid fundamentals of these top TSX growth stocks could help them maintain strong upward momentum in the years to come.

Read more »

coins jump into piggy bank
Dividend Stocks

The Smartest Dividend Stocks to Buy With $500 Right Now

These top dividend stocks both offer attractive yields and trade off their highs, making them two of the best to…

Read more »

stocks climbing green bull market
Stocks for Beginners

3 TSX Stocks Soaring Higher With No Signs of Slowing

Don't ignore stocks just because they look like they're at a high price. Instead, see exactly why they've driven so…

Read more »

dividends can compound over time
Bank Stocks

Is TD Bank Stock a Buy for Its 5.2% Dividend Yield?

TD Bank stock offers a rare 5.2% dividend yield—can it rebound from challenges and reward contrarian investors? Here's what to…

Read more »

chart reflected in eyeglass lenses
Investing

How Should a Beginner Invest in Stocks? Start With This Index Fund

This Vanguard index fund is the perfect way to start a Canadian investment portfolio.

Read more »

analyze data
Bank Stocks

Is BMO Stock a Buy for its 4.7% Dividend Yield?

Bank of Montreal is up 20% since late August. Are more gains on the way?

Read more »