Want SpaceX Stock? Momentus May Be The Closest Thing

Summary

• Momentus builds a space transfer vehicle which offers "ride sharing" for satellites, to take them to their precise orbits.
• It is expected to soon be a public company via a SPAC; Stable Road Acquisition Corp.
• If completed, it will be the first publicly traded pure-play space company.
• Although extremely speculative, the excitement this is likely to evoke among investors should not be ignored.

Investment Thesis

Momentus (NASDAQ:MNTS) is a pure-play space infrastructure company that is expected to go public via a SPAC, Stable Road Acquisition (SRAC, NASDAQ:SRACU, SRACW), and it will trade under the ticker MNTS. Despite an already rich valuation near $2 billion at the deemed value of $10 per share, it will have a significantly lower market cap than Virgin Galactic (SPCE) at $7 billion. Given the frothy nature of SPACs and the fact that Momentus will be an exciting one-of-a-kind public space company, I expect there to be near to intermediate term upside. However, the longer term outlook is a complete gamble.

Why Momentus is a unique company

What do you want to be when you grow up? At one time or another, odds are you dreamed of being a spaceman or woman. Space is the ultimate fantasy and final frontier. That includes for investing. There’s major thirst for this sector, which is yet to be created. For space pure plays, there’s almost nothing in the public markets. Even in the private secondary market, it’s nearly impossible to get shares in the granddaddy of them all; SpaceX.

While you can’t buy SpaceX, you soon may be able to buy one of their customers; Momentus. They call themselves "the space infrastructure company" and one could argue they will be the first pure play space company in the public markets.

Yes, you currently can buy Maxar Technologies (MAXR), Orbcomm (ORBC), SES (OTCPK:SGBAF), and a dozen or so others, each of which focuses on space to a varying degree. However, they're not pure plays. They’re more analogous to communications.

Did I forget about Virgin Galactic? Of course not. However, they may or may not be a space company, depending on your definition of space.

Image credit: NOAA

The most universally agreed upon definition of space is what's known as the Kármán Line. This is a boundary that exists 62 miles (100 km) above mean sea level. At this altitude, the atmosphere is so thin that the flying of a conventional winged aircraft no longer works. The difference between the low pressure above the wing and the high pressure below is too trivial to create lift. As such, if you are below the Kármán Line, you will fall back to earth. You are not in space.

Virgin Galactic flights are at 50 to 55 miles (80 to 89 km) above sea level, which is well below the Kármán Line.

It wasn't until 2005 when NASA began recognizing only 50 miles up as being space. That was mainly done to posthumously honor X-15 test pilots from the 50's and 60's, so they could officially be called astronauts.

Technically, the boundary between Earth’s atmosphere and space is even higher than the Kármán Line. Using a supra-thermal ion imager, the University of Calgary has determined it to be 73 miles (118 km).

While this all may a sound like arguing semantics, it’s not. In order to launch satellites or orbit earth, you must reach substantially higher elevations than what Virgin Galactic does. Even Low Earth Orbit (LEO), which is the lowest elevation for satellites, is 100 to 1,250 miles (160 to 2,000 km). The International Space Station is within that range, at 254 miles (408 km). Medium Earth Orbit (MEO) and Geosynchronous Earth Orbit (GEO) are even higher.

Virgin Galactic’s altitude of only 50 or so miles does offer the advantage of a near zero gravity experience momentarily for passengers. However, it’s useless for most industrial and commercial applications. For leisurely travel, you won't ever find orbiting space hotels at this altitude.

Unlike Virgin Galactic, which is geared towards being a luxury travel provider, Momentus aspires to be a space infrastructure company for commercial endeavors. This Santa Clara, California-based company states the following as their goal for 2025:

"We aim to be able to provide a full range of infrastructure services in microgravity and deep vacuum, which will open the door to infinite manufacturing possibilities. Impossibly large next-generation structures will continue to pave new paths for even greater human development in space."

For 2035, they talk about asteroid and moon mining! Though before we get carried away, let's focus on the here and now.

Understanding their technological niche for space

Momentus has developed what they call a space transfer vehicle. In short, it aims to offer a ride sharing service for satellites. You see, most satellites need highly precise orbits. Booking your own launch on say, a SpaceX Falcon 9 rocket, to accomplish that precise orbit is mighty expensive. What Momentus does is allow multiple satellites to hitch a ride on their Vigoride vehicle. In turn, that vehicle will take each satellite to its needed orbit.

The Vigoride vehicle is not a rocket. It can't get to space on its own. Rather, it must be launched into space by hitching a ride on a traditional rocket. To accomplish that, they've purchased rides on SpaceX Falcon 9 missions.

If, and it must be emphasized this is a big if, things go according to plan, this is not some far off pipe dream. Momentus already has customers lined up for 2021. According to CNBC, they had inked $40 million of contracts as of July. This includes NASA, Lockheed Martin (LMT), and a handful of space startups such as Relativity, Pixxel, NuSpace, and others. Keep in mind these entail “non-binding options with deposits prepaid.” In other words, don’t bank on them until they happen.

As far as proving the feasibility of their vehicle, they launched their first 16-unit cubesat mission in 2019. It proved their water plasma engine technology worked. This technology involves heating water to super-high temperatures using microwaves. They hope for this propulsion method to be 2-3x better than conventional chemical rockets.

If this is successful, Momentus may carve out a unique niche for itself in the space industry over the coming decade. What they may accomplish in the out years is anyone’s guess. In addition to Vigoride, they have bigger spacecrafts planned; Ardoride, Fervoride, and Valoride. In theory, these will be capable of doing a lot more.

Source: Momentus

Putting the valuation in perspective

If successful, the SPAC will raise about $348MM for Momentus, of which 80% ($280MM) goes to the company’s balance sheet. Another $30MM is a cash out to existing shareholders and $35MM goes to the bankers. As is typical with SPACs, the money comes from a combination of the cash in trust and PIPE equity.

In total there are 15,000,000 units, with an offering price of $10, each consisting of:

• 1 share of Class A common stock
• 0.5 redeemable warrant, exercisable at $11.50 per share and subject to adjustment

When added to the existing shares, this implies a valuation north of $1.5 billion (at $10/share). The underwriter also has the option to sell up to an additional 2,225,000 units for over allotments (which you should expect to be exercised, as long as shares trade above $10). Those, along with the exercising of warrants, would bring the market cap to around $2B. For more details, please see their SEC filings.

Currently the units, common shares, and warrants are all trading at ranges which imply an even higher valuation. Their tickers are:

• SRAC = Class A common stock
• SRACW = warrants
• SRACU = stock + 0.5 warrant

In contrast, Virgin Galactic has a market cap of around $7B. In no way am I comparing the significant progress they have made, relative to the very premature stage which Momentus is currently at. Rather, the comparison is merely show what the hype of a space company may fetch in the public markets, even if it’s blowing through cash with little to no revenue.

As with Virgin Galactic, trying to value Momentus on traditional metrics, like earnings or p/s, would be premature at this point. As of September 30th, they report "customer contracts which represent approximately $90 million in potential revenue over the next several years." See that press release here. Even if they were doing that amount per year, their implied market cap is a 20-25x sales multiple. Forget about earnings.

Then again, you do have a company in what may become one of the most speculative and frothy sectors we will see in our lifetimes. If you think the growth extrapolations (or delusions) with the EV sector are outrageous, just wait for the space sector to come to fruition. The TAM that people will use to justify space company valuations will be out of this world, literally.

How risky is Momentus?

In short, extremely risky. There are multiple challenges Momentus faces, some of which are unique to the company.

1. Unproven technology

Yes, the propulsion appears to work in real life tests done in space. However, that does not equate to proof that the Vigoride vehicle works as intended.

2. Competitors

You don’t want to be in a space biz that competes with Elon Musk or Jeff Bezos. Fortunately for Momentus, they don’t. At least not for the foreseeable future. In fact, they are complementary to SpaceX and Blue Origin, since they rely on such services for getting the Vigoride into space.

That being said, there are many space start-ups and at least one sounds to be a close competitor. Rocket Lab has Photon, which is a spacecraft that can also deploy multiple payloads at differing orbits.

3. Management

Elon Musk founded SpaceX in 2002. Richard Branson started Virgin Galactic in 2004. Momentus has only been around since 2017. The founder and CEO, Mikhail Kokorich, is currently legally barred from accessing the firm’s technology due to US national security law, due to the fact that he’s Russian. Even when you ignore that obstacle for a moment, his career history prompts more questions than answers.

If you look at his LinkedIn profile, you will see an interesting career history. Some is space related, some isn't. You will see home merchandise retail, electronics retail, and timber among other things. As far as his history in aerospace, based on some preliminary research, it was unclear to me as to whether his work in that field would be deemed a success.

I’m not saying he does not have what it takes, though we’re left questioning if he does.

4. Failure to merge

If the SPAC fails, the warrants will be worthless. You should be able to redeem your common stock for cash at $10/share. Any value you paid above that will be gone.

5. First Vigoride launch should be this month

For several months now, Momentus has said they are conducting their first rideshare mission in December on a Falcon 9, launched from Kennedy Space Center. No updates have been given as to the exact date. I called their HQ to find out more and the operator didn’t answer the phone (11 am PST on December 3rd). As is typical with space flights, dates are a moving target since so many variables are at play.

Assuming this is still a go, it will be either a positive or negative catalyst, depending on outcome.

Summary

SPACs are the latest casino game. It's far worse than the reverse merger mania of years past. Those generally didn't turn out well, nor will most SPACs. SPAC or not, it's hard to ignore something as exciting as space.

Buying into Momentus, at this stage, is pure speculation. Don’t try and talk yourself out of that fact. That being said, regardless of the company’s future success or failure, there’s no denying that it will probably generate quite a bit of excitement in the interim amongst retail investors.

Am I buying Momentus?

Yes, but with a lot of caveats.

Similar to what I did these past couple months buying Palantir (PLTR) at $9 and Jumia (JMIA) at $8, I’ve taken a tiny position in Stable Road Acquisition. My goal is to then unload my cost basis after a pop, similar to what I did with PLTR at $27 and JMIA at $37. Then I will hold the rest indefinitely. Whether it becomes a 10-bagger or a bankruptcy, I'll ride it out. This is the approach I like to take with stocks that are very expensive (like Palantir) and very speculative (like Jumia). From my days in private equity biotech, I've learned to always take my cost basis off the table when possible, no matter how sexy the company is, if it has a non-proven business model without earnings.

I’ve bought a combination of the common stock, units, and warrants for Stable Road Acquisition. The reason I bought all three was to capitalize on pricing discrepancies between them. In total, my cost basis equates to around $10 per share and $2 per warrant. In total, I would like to emphasize this very speculative purchase comprises less than 1/10^th of 1% of my liquid investments. If you buy, don't buy with money you need and upfront, you need to accept that you are likely to lose it all.

I can’t justify these buys based on any fundamental approach. As with many of you, it’s the dream of owning a tiny bit of the next big thing: space. Odds of failure here are extremely high, but it should be an exciting ride nonetheless. Good luck.

Analyst’s Disclosure: I am/we are long SRAC, SRACU, SRACW, SPCE, LMT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I am not a financial advisor. This article is general information and should not be misconstrued as investment advice. Please do you own due diligence regarding any stock directly or indirectly mentioned in this article. You should also seek advice from a financial advisor before making any investment decisions.