Bulls Say AST SpaceMobile Is a 10-Bagger. Bears Say It's Overhyped. Who's Right?

Battleground stocks have emerged in the space economy, and investors are taking sides -- nowhere more so than with AST SpaceMobile (NASDAQ: ASTS). The upstart satellite internet provider was at one point up 1,000% in the last five years, but it has recently slipped more than 50% from its highs.

Bulls think the innovative satellite internet provider can become a behemoth in telecommunications. Bears think that this is simply a pre-revenue company burning billions every year with a market cap of $24 billion.

Who is right?

Image source: Getty Images.

The bullish case for satellite internet

Satellite internet has a massive addressable market, as illustrated by the growth of Space Exploration Technologies' Starlink. Revenue was $4.3 billion for the SpaceX segment just last quarter, up 66% year over year, with strong profitability.

AST SpaceMobile envisions a world where it can improve on the customer value proposition Starlink has built. How? With high-speed internet beamed directly to smartphones. It plans to do this with large satellite arrays that can connect to computers on Earth without the need for a dish antenna to receive the signal. This could be revolutionary and help transition more of the hundreds of billions of dollars in wireless communications revenue generated worldwide each year.

The plan is to have this satellite constellation work with mobile carriers like Verizon to upsell customers high-speed satellite internet when they are outside Verizon's terrestrial network. The company is also working with the United States government for military connectivity applications.

Combined, once the satellite network is up and running, there could be billions in potential revenue in the United States and tens of billions internationally. This is the bull case investors in the stock see right now, even though the trailing revenue is close to zero.

Bears look at trailing financials and capital intensity

Where bears start to argue against AST SpaceMobile is that the timeline for commercialization keeps getting pushed further and further out. The new timeline for debuting the satellite constellation for commercial use is the first half of 2027, rather than later this year. This has occurred because it cannot get rocket launch providers -- including its competitor SpaceX -- to launch its satellites into orbit as quickly as it wants.

As the launch date keeps getting pushed back, AST SpaceMobile's financials begin to look worse and worse. The company generated $31.5 million in revenue last quarter, mainly from upfront commercial contracts, while burning $1.75 billion in free cash flow over the last 12 months.

Bears will say that if this timeline keeps getting pushed back, AST SpaceMobile will continue to burn cash and eventually need to raise money, which will likely lead to a lower stock price.

Data by YCharts.

Who is right?

No one knows with 100% certainty whether bulls or bears are right about AST SpaceMobile. However, the financials suggest that the bears are more likely than not to be correct.

With a market cap of $24 billion, AST SpaceMobile's stock already prices in significant success for its satellite internet constellation. If, at some point in the future, the company can get to $3 billion in revenue and $1 billion in earnings, that is a price-to-earnings ratio (P/E) of 24, which is not overly cheap. Today, it has close to zero in revenue.

This capital intensity should be seen as a risk, especially given that other satellite internet providers, such as Starlink, are developing their own direct-to-device services. If Starlink and its existing business can copy what AST SpaceMobile is building, that could mean a satellite internet service that is dead on arrival, leading to a falling share price.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AST SpaceMobile. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.