Why Redwire Stock Shot Up 168% In May

Shares of Redwire (NYSE: RDW) shot up 168% in May, according to data from S&P Global Market Intelligence. The space and defense subcontractor is shooting up in anticipation of the SpaceX initial public offering (IPO) as a key supplier of orbital data centers for artificial intelligence (AI).

Strong quarterly results were also a catalyst for Redwire's stock price rise last month. Here's what happened, and whether investors should dive into this space economy stock after doubling in such a short time.

Huge contract wins

It may not have the headline contracts compared to a SpaceX or Lockheed Martin, but Redwire is a key supplier to these large space and defense players. Specifically, Redwire sells sensors, energy systems, and spacecraft platforms, and recently moved into military drones with its 2025 acquisition of Edge Autonomy.

Related to SpaceX is the potential to sell solar energy systems for AI data centers. SpaceX plans to spend billions, if not tens of billions, on AI computing systems in orbit, which will likely be powered by solar panels that unfold after the satellite data center is deployed. Redwire specializes in these complex solar arrays and could see a boom in demand if AI data centers are the future.

Last quarter, we saw the potential of Redwire in action. Revenue grew 58% year over year to $97 million in Q1, and its backlog increased to $500 million due to multiple contract wins. Importantly, Redwire's book-to-bill ratio -- which measures the amount of contract value added to its bookings vs. how much it billed in the period -- was 1.92. This means it booked almost 2x to its backlog compared to billings, which should lead to strong revenue growth in future years.

Image source: Getty Images.

Should you buy Redwire stock?

Redwire is a fascinating business, a potential hidden winner in the space economy. Even after this jump, it still has a market cap of only $4 billion, compared to the massive valuations of stocks like SpaceX and Rocket Lab. When it comes to valuation, Redwire is not profitable, but it trades at a price-to-sales ratio (P/S) of 8.3, which is below that of some of the hottest stocks in the sector at the moment.

Strong demand for solar arrays and other orbital solutions that Redwire supplies as the "picks and shovels" of the space economy should drive steady revenue growth in the years ahead. As long as Redwire eventually turns a profit, the stock could be a high-risk winner over the next decade, despite last month's rise.

Brett Schafer 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.