Can Space Stocks Bounce Back? This $1 Billion Air Force Contract Might Help.

Space stocks are in shambles.

"Led" (in a bad way) by Space Exploration Technologies (NASDAQ: SPCX), the space titan built by Elon Musk and IPOed on June 12, shares of space stocks of all stripes have taken a beating over the past couple of months.

Take Rocket Lab (NASDAQ: RKLB) for example. The space company, often described as a mini-SpaceX, surged from below $5 in May 2024 to more than $140 in May 2026 -- a thirtyfold rise in just two years. Then it plunged more than 50% after the SpaceX IPO.

Or consider AST SpaceMobile (NASDAQ: ASTS), the satellite communications pioneer that proved the concept of cell phone-to-cell phone communications via satellite, with no towers in between. That one rose nearly twelvefold over the same two-year period -- then gave back 20% in the month following SpaceX's titanic IPO.

More targeted space plays such as Redwire Corporation (NYSE: RDW), which builds space infrastructure, and Intuitive Machines (NASDAQ: LUNR), focused on delivering cargo to the moon, gained fourfold in two years and nearly eightfold, respectively, before falling each falling roughly 70% in a month.

Can they bounce back?

Image source: Getty Images.

SpaceX leads; others follow

Even SpaceX hasn't gone unscathed. After a first few frenzied days of trading that lifted Elon Musk's space empire past $211 a share, sellers arrived in force at SpaceX, driving the shares down nearly into the double digits.

The good news is that SpaceX appears to have found its footing again, closing at $140 Friday and once again above its IPO price. The better news is that many other space stocks are recovering, at least somewhat, alongside the leader.

The best news of all is that, with the U.S. government continuing to pour money into space exploration, there's reason to believe the momentum is sustainable.

NITE-STAR gazing

Case in point: Late last month, the U.S. Space Force announced a $981 million award to be shared among more than a dozen separate space stocks working on the "National Space Test and Training Complex Innovative Technology and Engineering Space Test and Range Capability Development" -- dubbed "NITE-STAR."

(Someone clearly worked overtime trying to make those words fit that acronym.)

Space Force named the following 15 space companies -- 13 of which are publicly traded -- as winners of NITE-STAR, clearing them to bid on future task orders under the umbrella contract, which will span 10 years:

• Amentum Holdings (NYSE: AMTM)
• BAE Systems (OTC: BAESY)
• Boeing (NYSE: BA)
• CACI (NYSE: CACI)
• Firefly Aerospace (NASDAQ: FLY)
• L3Harris Technologies (NYSE: LHX)
• Lockheed Martin (NYSE: LMT)
• Northrop Grumman (NYSE: NOC)
• Pacific Crest Alliance
• Parsons Corporation (NYSE: PSN)
• Redwire
• Rocket Lab
• Sierra Space Corp.
• Viasat (NASDAQ: VSAT)
• York Space Systems (NYSE: YSS)

It's not entirely clear what NITE-STAR will entail. The Space Force itself might not be 100% certain, describing the contract's goal vaguely as "advancement of the sophisticated systems and technologies required to keep [Space Force servicemen known as] Guardians ahead of the complexities of a contested space domain."

More importantly for investors, it's less than 100% certain anyone on the above list will book significant, needle-moving wins -- even on this nearly $1 billion contract.

What it means for space investors

Consider that $981 million, spread over 10 years, works out to just $98.1 million per year. And if contracts are evenly distributed, each of the 15 companies might, on average, expect to book as little as $6.5 million per year under the contract.

It goes without saying that $6.5 million won't move the needle for giant space companies such as Boeing, Lockheed, Northrop, or L3Harris. Smaller space-fry such as Firefly, Redwire, or York Space might notice the revenue influx more. But even at York, $6.5 million extra per year will only add about 1.5% to the company's $405 million-a-year revenue stream.

In short, big as this contract appears on the surface, it's not -- in and of itself -- going to be enough to turn things around and start a new bull market in space stocks. Many more contracts, and many much larger contracts, will be needed for that.

Meanwhile, a survey of 15 of the biggest space stocks that I follow shows an average price-to-sales ratio of 65.4. (Even throwing out triple-digit P/S outliers such as AST and Virgin Galactic (NYSE: SPCE) only brings the average P/S down to 19.8.) Valuations remain extreme in this sector.

Investors should be wary. Even after some pretty historic declines, space stocks as a whole aren't yet cheap enough to guarantee a bounce-back.

Rich Smith has positions in Intuitive Machines and Rocket Lab. The Motley Fool has positions in and recommends AST SpaceMobile, Amentum, Boeing, Firefly Aerospace, Intuitive Machines, L3Harris Technologies, Rocket Lab, and York Space Systems. The Motley Fool recommends BAE Systems and Lockheed Martin. The Motley Fool has a disclosure policy.