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Despite their popularity, most penny stocks struggle to deliver on explosive promises. Yet when looking at Filtronic (LSE:FTC), the firm seems to have beaten the odds and gone on to deliver ginormous returns for loyal shareholders.
Shares of the electronic aerospace equipment group have skyrocketed by 1,212% over the last five years. That means a £1,000 investment in March 2020’s now worth £12,120. And since 2025 kicked off, the now small-cap firm has surged by a further 45%.
What’s behind this? And can this momentum continue to deliver another 10x return in future?
Partnering with SpaceX is profitable
Filtronic has been making progress over the years. But it wasn’t until last April that growth kicked up a notch. Following a successful partnership with Elon Musk’s SpaceX, Filtronic secured a $19.7m (£15.8m) contract to supply E-band SSPA modules for the Starlink Project. These electronic components enable high-speed communication across 5G and other wireless networks.
The impact of this deal has been made perfectly apparent in the latest interim results released at the start of February. Revenue surged from £8.5m to £25.6m across the six months leading to November 2024. At the same time, operating profits jumped from a loss of £0.4m to a gain of £6.8m. And management’s already been deploying this extra capital to expand production capacity and grow its headcount.
It was only a few days later that Filtronic made another announcement of a contract signed with SpaceX valued at $20.9m (£16.8m) to be delivered before May 2026. It seems its now largest customer is quite happy with the product and is coming back for more.
Another 10-bagger?
Seeing a 200% jump in revenue is undeniably a cause for celebration. So it’s no surprise to see Filtronic’s share price rise out of penny stock territory. However, could it be capable of delivering year another quadruple-digit gain over the next five years?
Providing that the SpaceX contracts are fulfilled on time and to satisfaction, new opportunities will likely emerge. Not just with SpaceX but with other aerospace and satellite businesses that have taken notice of Filtronic’s technological capabilities.
However, whether that will translate into another 1,000% share price return, I’m not so certain. Why? Because at a market-cap of £230m, it seems a lot of this expected growth’s already baked into the stock price. It’s also worth pointing out that part of its deal with SpaceX granted the aerospace business the right to acquire roughly 10% of Filtronic’s equity through share warrants.
SpaceX may just decide to acquire Filtronic for its technology. Of course, this is pure speculation. However, while a takeover bid would likely send the shares flying, a 1,000% buyout premium seems improbable.
What to watch
Right now, I feel Filtronic shares are fully valued in terms of their potential. So this isn’t a business I’m rushing to add to my portfolio today. However, for existing shareholders, a new significant risk has just emerged. Almost all of Filtronic’s newfound revenue growth stems from a single customer – SpaceX.
Should the relationship break down, or Filtronic’s components simply won’t be needed anymore, replacing this lost income will be a serious challenge for management. In the worst-case scenario, Filtronic could tumble back into penny stock territory. I don’t see it as one to consider.
