Should You Buy AST SpaceMobile While It's Below $53?

AST SpaceMobile's (NASDAQ: ASTS) stock has surged nearly 360% over the past 12 months. The bulls embraced the producer of low earth orbit (LEO) satellites as it launched its first batch of commercial satellites and secured new contracts.

But the five Wall Street analysts who cover AST still believe it could head higher. They all rate the stock as a buy or strong buy, and the most bullish analysts at Deutsche Bank expect it to rally from its current price of $22 to $53.

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Deutsche Bank expects AST to generate nearly $3 billion in revenue from its Northern Hemisphere markets and another $1.5 billion in revenue from its Equatorial markets by 2030. A major catalyst is its new 10-year contract with Vodafone, which would boost its presence in Europe, Africa, India, and the Middle East.

If AST generates $4.5 billion in revenue in 2030, that would represent a compound annual growth rate (CAGR) of 211% from its estimated revenue of $5 million in 2024. That would be a remarkable growth trajectory, so should you buy AST's stock while it's still trading far below Wall Street's most optimistic price target?

How does AST SpaceMobile make money?

AST's LEO satellites can provide cellular 2G, 4G, and 5G connections in areas that can't be easily served by terrestrial tower networks. It mainly delivers its data through low-band spectrums, which operate at lower speeds but have broader coverage areas than the high-band spectrums utilized by its closest rival, Starlink.

AT&T and Verizon Communications, which both provide low-band 5G connections, partnered with AST SpaceMobile last year. Its recent deal with Vodafone further expands its overseas reach. T-Mobile, which mainly provides its 5G services though high-band spectrums, partnered with Starlink in 2022.

AST launched its first five Block 1 BlueBird (BB1) commercial satellites last September. That long-awaited event marked its first step toward generating consistent commercial revenue. The company aims to launch its first four Block 2 BlueBird (BB2) satellites, which are 3.5 times larger than its BB1 satellites and can process about 10 times as much data, in the first quarter of 2025.

Eventually, AST plans to launch 17 BB2 satellites and expand that "constellation" to 243 LEO satellites over the long term. However, that massive expansion would require a broader approval from the Federal Communications Commission (FCC).

How fast could AST SpaceMobile grow?

For 2024, analysts expect AST to generate just $5 million in revenue as it racks up a net loss of $426 million. But from 2024 to 2026, they expect its revenue to grow at CAGR of 761% to $371 million as it narrows its annual net loss to $95 million.

To meet those rosy expectations, AST needs to ramp up its launches, gain the FCC's approval for its expansion plans, and lock in more telecom customers. The recent addition of a lower mid-band spectrum to its network should further expand its reach.

Yet two major issues could limit its near-term gains. First, AST has increased its share count by 287% since it went public by merging with a special purpose acquisition company (SPAC) in April 2021. It's repeatedly diluted its shares to raise fresh cash through secondary offerings and subsidize its salaries with stock-based compensation.

Second, a lot of AST's future growth looks priced into its stock. With an enterprise value of $4.2 billion, it already sits at 11 times its projected sales for 2026. Any delayed launches or regulatory challenges could deflate that valuation.

If AST's stock rises to $53, its enterprise value would grow to about $9.9 billion, or 37 times its expected sales for 2026. That's a bit too bubbly for my tastes. It might grow into that premium valuation if it meets Deutsche Bank's estimate of $4.5 billion in revenue by 2030, but a lot of challenges could prevent it from hitting that lofty target.

Should you buy AST SpaceMobile's stock right now?

At $22, AST is already an expensive and speculative stock. But it might be worth nibbling on if you believe it can successfully scale up its business -- since a lot of leading telecom companies are now expanding their coverage with its satellites.

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Leo Sun has positions in AT&T. The Motley Fool recommends T-Mobile US, Verizon Communications, and Vodafone Group Public. The Motley Fool has a disclosure policy.