Not surprisingly, shares of Orbital Sciences stock crashed after the rocket it built for NASA exploded on Tuesday. No one was hurt in the explosion…except, of course, for Orbital Sciences’ shareholders.
The video is spectacular.
An unmanned resupply rocket on its way to the International Space Station (ISS) exploded seconds after launch on Tuesday afternoon, creating the massive fireball that you see in the video above. And while the visuals in the video are spectacular, its financial implications for one company are not.
As soon as I saw the video and read that the rocket had been built by a private contractor I wonder if that company is publicly traded.
Sure enough, Virginia-based Orbital Sciences Corp (NYSE: ORB) is responsible for the doomed Anteres rocket and is indeed a publicly traded company. And not too surprisingly, shares of Orbital Sciences crashed after the rocket exploded.
Orbital Sciences stock fell around 15 in after-hours trading on Tuesday. Shares opened right around the same level on Wednesday morning and moved steadily lower throughout the day, closing down 16.79% for the day.
The stock hasn’t recovered much but it seems like the major move for this stock has happened. The question in my mind now is why the rocket exploded and whether or not it was because of a failure somewhere in Orbital Sciences’ systems.
I see an opportunity here, though it is one I’m not interested in.
Most likely, the explosion of the Anteres rocket is – in one form or another – the fault of Orbital Sciences. The rocket, the spacecraft it carried and its roughly 5,000 pounds of cargo are all a total loss, a loss of over $200 million. But even if the reason the rocket exploded turns out to be entirely caused by something Orbital Sciences did, I believe this is priced into the stock.
It crashed to just above $25 per share and seems to be holding that low-to-mid $25 range. If the investigation reveals that something out of Orbital Science’s control is to blame, for example a mistake on the part of the National Aeronautics and Space Administration (NASA), shares of Orbital Sciences could see a big boost.
The stock is still up 8% for the year despite the big drop after the rocket exploded, essentially the same year-to-date performance of the S&P 500. Today it trades at a PE of 22.3 and a forward PE of around 13.5. These metrics make the stock look reasonably priced when compared to the average PE of the S&P 500 around 19.3.
When you look at Orbital Sciences’ Price-to-Earnings Growth ratio (PEG), currently sitting at 1.33, the stock looks a bit less reasonably priced. A PEG of 1 is considered by many to be an indicator that a stock is fairly priced. Anything below that generally indicates that the stock is undervalued while anything above it suggests the stock is overpriced.
But when you consider the big drop in shares took the stock’s PE down to 22.3 from a PE of around 27 just three days ago, this could be a great opportunity to pick up shares if you believe in the future of private space travel and exploration.
I personally do believe in the future of this industry because, even without private individuals paying for and traveling into space, large space agencies like NASA are willing to pay hundreds of millions of dollars for a company like Orbital Sciences to build its rockets and spacecraft.
While I believe in the future of private space travel, this is one investment opportunity I will be taking a pass on. Frankly, Orbital Sciences’ main competitor – Elon Musk’s SpaceX – seems too big and powerful of a foe for me to want to bet against.
But SpaceX isn’t publicly traded. So until Orbital Sciences can move past the reality that its newest rocket exploded seconds after liftoff, this is one industry I’ll be steering clear of.
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