Why Redwire Stock Keeps Going Down
Key Points
Redwire did not win any of the 25 Drone Dominance contracts awarded last week.
About the same time the news broke, Redwire stock began moving lower.
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$10 a share. $9 a share. $8. Lower. For the past three trading days, space-and-defense stock Redwire (NYSE: RDW) has gone nowhere but down, losing more than 20% of its market capitalization in total -- including an 11% loss through 12:05 p.m. ET Thursday.
The question is why?
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And the answer appears to be: "Drone Dominance" -- or rather the lack thereof.
Image source: Getty Images.
Redwire's big new business
In case you've forgotten, Redwire began life as a space stock, specializing in orbital infrastructure -- but became a defense stock, too, when it bought military drones specialist Edge Autonomy for $925 million early last year.
Owning Edge opened up the military market to Redwire. It also opened the stock up to speculation by momentum investors hoping that Redwire might get a piece of the action as the U.S. Pentagon began emphasizing purchases of cheap, first-person-view (FPV) attack drones in a program known as Drone Dominance.
Reports of the initial winners of Drone Dominance began dropping last week, when the Pentagon picked 25 companies to compete for the $1.1 billion program. Unfortunately for Redwire, its name was not on that list.
Is Redwire stock a sell?
Redwire's price decline aligns with the timing of the Pentagon's Drone Dominance announcements -- and by implication, with the fact that Redwire was not one of those winners. I suspect this is the reason Redwire stock has been going down lately.
It's not necessarily a good reason, however. Priced at just 5 times trailing sales, Redwire is currently one of the cheapest space stocks on the market. With Edge in hand, it's also expected to report its first-ever positive free cash flow this year: $26 million, according to Wall Street analysts.
Whatever its success as a defense stock, Redwire looks cheap as a space stock.
Should you buy stock in Redwire right now?
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Redwire. The Motley Fool has a disclosure policy.
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