Why MDA Stock Jumped 16% Last Week

A $474 million contract boost sent MDA soaring because backlog turns future revenue from a guess into a signed plan.

Amy Legate-Wolfe

Author Bio Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Her work can also be found at Canada's National Observer, where she writes on the business side of climate action. Before joining Motley Fool Canada, Amy wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Social Media Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published August 11, 5:00 pm EDT

Key Points

MDA’s new Telesat order should lift backlog and spreads fixed factory costs across more satellites.
The defence add-on improves the story, but execution and customer concentration are still big risks.
After a huge one-day jump and a rich valuation, start small and avoid chasing the spike.

A single announcement added nearly half a billion dollars to one Canadian company’s order book and sent its share price briefly soaring more than 16% last week. The satellites haven’t been built, launched, or paid for yet. Investors still decided the future had become considerably more valuable before breakfast.

That reaction makes more sense once investors understand backlog. A signed contract normally enters backlog before becoming revenue. The company then recognizes sales as it completes the work, while costs determine how much eventually reaches profit and cash flow. Backlog isn’t money in the bank, although it makes tomorrow’s revenue far less imaginary.

Repeat orders can be especially powerful. The customer already knows the technology, the manufacturer already has a production line, and both sides can avoid starting from a blank sheet of very expensive paper. Add Canadian defence spending and demand for satellite internet, and this particular repeat order arrived with several engines attached.

Rocket lift off through the clouds — Source: Getty Images

A reason to rally

MDA Space (TSX: MDA) builds communications satellites, Earth-observation systems, and space robotics. Its MDA AURORA satellites are designed for large low-Earth-orbit constellations, while its Montréal factory can eventually produce as many as two satellites per day. Spacecraft have officially entered their assembly-line era.

On August 4, MDA stock announced that Telesat was adding $474 million to its Lightspeed contract. Telesat is expanding its fully funded constellation from 156 to 225 satellites. MDA stock will build 27 additional satellites, increasing its portion of the program from 198 to 225, while also adding military communications capabilities and long-lead equipment.

The defence component helps explain the enthusiasm. Every MDA-built Lightspeed satellite will now carry military Ka-band capacity supporting Canadian Armed Forces communications in the Arctic. MDA stock was also selected as prime contractor for a separate medium-Earth-orbit portion of the program, although those contract negotiations aren’t finished. One order may therefore be introducing the next.

Real growth

The new award equals approximately 29% of MDA’s entire 2025 revenue. Most of it should enter backlog during the third quarter, strengthening the $3.7 billion backlog reported in March. That is valuable fuel for one of Canada’s more interesting Canadian growth stocks, particularly because the operating business was already accelerating.

First-quarter revenue increased 32% year over year to $464.1 million. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) also rose 32% to $90.6 million, producing a 19.5% margin. The contract doesn’t create instant profit, but it gives MDA stock more volume over which to spread its factory, engineering, and development costs.

Don’t chase the rocket

MDA stock climbed from $42.44 on July 31 to $48.10 on August 4, a 13.3% closing gain, after rising as high as $49.35 during the session. The stock recently traded at about 60 times trailing earnings, yet remained about 30% below its 52-week high. Still, nobody should mistake that discount for a bargain sticker.

Execution is the largest risk. MDA must convert a massive, customer-concentrated backlog into profitable cash while completing two acquisitions and integrating recently purchased businesses. First-quarter free cash flow was negative $27.6 million, and July’s large share offering diluted existing owners. A delayed program, cost overrun, or weaker margin could make an expensive stock descend rapidly.

Bottom line

The contract strengthens MDA stock’s long-term case. It validates AURORA, supports the Montréal expansion, deepens the defence opportunity, and adds unusually visible revenue. Investors comfortable choosing growth stocks could begin a small position.

MDA stock still needs to turn satellites on the factory floor into cash on the financial statements. If it does, the jump may look less like the end of a rally and more like the market finally noticing how much work is waiting to leave the launch pad.