Key Points

The upcoming SpaceX IPO is drawing investor focus to other space-related stocks.
Redwire targets the foundational elements of the sector.
10 stocks we like better than Redwire

Elon Musk's space industrial leader, SpaceX, plans to proceed with its long-awaited initial public offering (IPO) this week. Although the shares are not yet on the market, eager investors have already driven up prices for other space companies.

Redwire (NYSE: RDW) illustrates this trend, with shares climbing 105% year to date. The key question is whether the move marks the beginning of sustained gains or reflects short-term excitement.

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What is Redwire?

Redwire lacks the name recognition of SpaceX. It launched six years ago when private equity firm AE Industrial Partners merged two portfolio companies, Adcole Space and Deep Space Systems.

Results have varied since the direct listing via a special purpose acquisition company (SPAC). More recently, Redwire has gained from several broad economic factors and internal developments.

The firm stands to benefit from rising defense budgets and advanced military systems. This shift gained momentum after the Russian invasion of Ukraine in 2022 and continued with U.S. tensions involving Iran. Redwire supports this area via its defense tech unit, supplying autonomous combat drones along with navigation and optical equipment for surveillance and intelligence work.

The company expanded quickly in this segment by acquiring Edge Autonomy for $925 million. The UAV provider already holds contracts with the U.S. Department of Defense and allied nations that operate its Penguin drone on reconnaissance flights.

Space infrastructure forms the second major part of the business. Leadership aims to take advantage of NASA and other agencies shifting more hardware work to commercial suppliers. Redwire's imaging and navigation systems flew aboard NASA's Orion spacecraft during the Artemis II mission, a crewed lunar flyby.

Business is booming

First-quarter revenue climbed about 58% year over year to $97 million. Growth came largely from the defense tech segment, where sales more than quadrupled to $44.3 million. While that figure remains modest within defense contracting, the unit should keep expanding given the current geopolitical climate.

Image source: Getty Images.

Profitability remains unclear. Like many emerging technology firms, Redwire has yet to map a clear route to positive earnings. Research and selling general and administrative expenses have risen sharply, partly due to recent acquisitions that added new managers, engineers, and specialists. These costs pushed operating losses nearly four times higher to $69.7 million.

When internal cash flow cannot cover operations, firms seek outside funding such as equity offerings.

On June 9, shares fell more than 15% after management disclosed plans to issue and sell $500 million of new stock to support operations. Although equity dilution can aid growth, it raises the share count and lowers existing owners' portion of future profits.

Is Redwire a millionaire-maker stock?

At first glance, Redwire possesses several traits of a high-growth stock. It carries a modest market value of $4.26 billion and works with major customers including NASA and the Department of Defense on cutting-edge projects. Still, repeated equity raises introduce risk and price swings. Investors may prefer to see a clearer path to profits before taking a position.

Should you buy stock in Redwire right now?

Before you buy stock in Redwire, consider this:

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Will Ebiefung 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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.