Although Maxar Technologies (TSX: MAXR) has helped many space missions take off, the stock has been grounded for the last few years. And it’s not just Maxar that’s underperforming markets. Many growth companies have been trading weak on challenging macro conditions. But concerningly for Maxar, the weakness could last longer due to its weaker fundamentals.
Should you buy MAXR stock?
Maxar Technologies is a $2.5 billion space technology company specializing in geospatial imagery and robotics. It caters to both commercial and government customers by helping them access space.
Geospatial imagery is a budding field in the space technology area. It involves gathering information and providing analytics about human activities on the earth’s surface. Maxar derives nearly two-thirds of its revenues from Earth Intelligence, and the rest comes from the Space Infrastructure vertical.
Maxar was recently awarded a 3-year contract renewal to provide mission-ready satellite imagery by the U.S. National Geospatial-Intelligence Agency. Under the contract, Maxar will keep providing geospatial data to more than 400,000 US government users. The contract renewal is valued at US$44 million, while the total project contract value is US$176 million.
Back in March 2022, Maxar satellites provided unique images of war-torn Ukraine. These images also helped track the movements of Russian troops and gave insights into the destruction.
Maxar offers healthy growth prospects but also involves huge opportunity costs
Space technology is still a developing area and offers huge growth prospects. In such a high-growth industry, Maxar is an established name with a recurring revenue base. Higher government spending on space projects will likely drive growth for companies like Maxar.
Despite the growth potential, Maxar is a fundamentally weak name at the moment. Its revenue growth has been weak over the last several years.
In the last 12 months, the space tech company has reported a net income of just $30 million on total annual revenues of US$1.7 billion. That indicates a significantly lower margin and poor earnings visibility.
Apart from earnings, Maxar has a weak balance sheet with a large debt pile of nearly US$2.4 billion. The company has a leverage ratio, measured by net debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization), close to 5.2x.
To add to the woes, higher inflation and a rising interest rate environment do not bode well for such companies. As a result, we have seen growth stocks with poor profitability take a big hit this year. And as rate hikes are forecast to continue for the next few quarters, growth stocks like Maxar could continue to trade weakly.
Alternative stock idea
So, what could be an interesting bet in the current environment?
Canada’s biggest energy company Canadian Natural Resources (TSX: CNQ) has amazingly delighted its shareholders in the last few years. It has returned 60% this year, including dividends. While its dividend profile looks appealing, its earnings growth prospects could drive capital gains as well.
A strong price environment could persist next year too, which might keep boosting its financials. Declining debt, surging dividends, and stellar earnings growth will likely create considerable shareholder value in the long term.
