Could Buying AST SpaceMobile Stock Today Set You Up for Life?

AST SpaceMobile (NASDAQ: ASTS) is an exciting stock. It has such an interesting story backing it that some investors might wonder if buying in now could help to set them up for life. That is possible, but there's one small problem that you need to consider before stepping in here. This is what you need to know about AST SpaceMobile before you buy it.

What does AST SpaceMobile do?

AST SpaceMobile operates a satellite-based broadband cellular network. It is really just starting to build out that network, but it has some of the most important markets covered. That list includes the United States, Europe, and Japan. When it actually turns the network on, it should be ready to hit the ground running.

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Image source: Getty Images.

One of the key features of AST SpaceMobile's business model is that it is working in partnership with some of the world's largest telecom companies. That list includes both AT&T and Verizon Communications. These providers have massive customer bases, to which they will market AST SpaceMobile's service as an add-on. The benefit is that satellite access, using a customer's existing cellphone, ensures phone service in virtually all locations.

The longer-term goal for AST SpaceMobile is to provide worldwide coverage. Essentially, with no additional outlay for technology, a cellphone customer will eventually be able to ensure they have access to the internet and communications networks the world over. All it will require to take advantage of that "insurance" is a monthly fee, though there are also likely to be other options for those who only need such coverage for a short duration of time.

This is a compelling story and hints that there could be a huge amount of growth ahead. That will first come from simply rolling out the service in currently covered regions. But then it will expand as AST SpaceMobile's satellite network grows over time.

The problem with AST SpaceMobile

So that's the glass-half-full view of things, and it is a compelling story for investors to consider. But there are always caveats to think about, and there are two big ones with AST SpaceMobile. First, launching satellites into space is not a cheap or easy thing to do. Execution will be very important. However, AST SpaceMobile only directly controls just so much of its business on this front.

Even if it can build new satellites at a rapid clip, it has to get them launched into space by a third party. It's possible for spaceships to blow up, destroying their contents. A big disaster on that front would be a costly setback for AST SpaceMobile, even though it had little control over the outcome of the launch event. And that assumes that AST SpaceMobile executes very well on what it can control, which isn't a given.

Second, and perhaps more worrying, is the fact that Wall Street is clearly aware of the opportunity AST SpaceMobile presents. The stock is up more than 400% over the past year, and by nearly 600% over the past three years. Even as the stock has risen in meteoric fashion, the company still has yet to turn a profit.

ASTS data by YCharts.

It looks like Wall Street may already be pricing in a lot of good news here. In fact, the recent stock price advance has been so swift that it hints that investors may have gotten a little overenthusiastic about the company's prospects.

Sure, the long-term opportunity could be huge, but how much of that appeal has already been baked into the share price? A price-to-earnings ratio of roughly 20 would require earnings of around $2 per share, which seems like an unlikely outcome over the near term given the large need for capital investments (to build and launch additional satellites).

AST SpaceMobile is expensive

So there's no question that AST SpaceMobile, assuming it executes well, has a very attractive story behind it. That's not the problem with the stock. The problem is that Wall Street often gets a story in its teeth and runs too far and too fast with it. That seems like it might be happening with AST SpaceMobile right now. If you buy it, remember that it is still just a start-up company.

You may have to stick around for a long time to benefit given the swift price advance already experienced by the shares. Worse, you may have to sit through a deep drawdown if there are any setbacks, or if the business doesn't develop quickly enough for Wall Street. In other words, AST SpaceMobile is probably only appropriate for more aggressive investors with a very long-term investment horizon.

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.