Should You Buy Redwire Stock Below $13?

Redwire Corporation (NYSE: RDW) had a terrific Q2 -- or at least, investors viewed it that way.

Redwire beat sales expectations, reporting $117 million for the quarter earlier this month. Losses were less than expected at only $0.09 per share. Investors cheered -- and shares of the space infrastructure-and-terrestrial drones company soared past $13 a share the day after earnings were released, a one-day gain of nearly 15%.

They've mostly stayed above $13 since that Aug. 5 earnings report, but briefly dipped below that level on Tuesday. Today, the stock is down 7.3% (as of 12:15 p.m.). And now the question for investors is: Should you buy Redwire stock while it's still below $13?

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Redwire stock is a rocket

The sales and earnings news for last quarter was only the beginning, too. Proceeding through its report, Redwire described how it flipped from negative gross profit margins a year ago to positive 27.8% this time, and how it added 42% more money entering its backlog as new orders, than exited as revenue -- a book-to-bill ratio of 1.42. And how its backlog of work to be done now stands at $542 million.

That's more than 15 months' work all lined up and ready to be done, at the company's current annual revenue rate of $426 million.

Between the rising backlog and the accelerating rate of new orders, Redwire anticipates growing its sales by up to 49% this year, to perhaps $500 million.

How to value Redwire stock

That's the good news.

The bad news is that analysts polled by S&P Global Market Intelligence think Redwire will need to reach closer to $700 million before it has a chance of becoming profitable. Long-ish range forecasts see the company approaching that mark in 2028, with about $685 million in sales -- but still $10 million in losses. So Redwire will probably have to exceed $700 million in revenue before it reaches breakeven profit under GAAP.

Until that happens, investors won't be able to value Redwire on price-to-earnings, and will have to make do with price-to-sales ratios.

This, unfortunately, is the other bad news. Currently priced at $3.35 billion in market capitalization, Redwire stock sells for 7.9 times trailing sales and 6.7 times its own best estimate of current-year sales. The stock furthermore costs nearly 5 times the sales that analysts forecast for it in 2028 -- two years from now.

All of these valuations, unfortunately, remain well above the 2x-4x sales valuation that investors have historically paid for not-yet-profitable space start-ups like Redwire. For this reason, I continue to view Redwire stock as overvalued.

Tempting as it may be to buy Redwire now that its stock has fallen below $13, I'd need to see it drop to $8 or below before I'd be interested in buying.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.