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Intuitive Machines Stock: Buy, Sell, or Hold?

Motley Fool - Wed Oct 23, 4:30AM CDT

Over the past three years, many space-oriented start-ups went public by merging with special purpose acquisition companies (SPACs). A lot of those stocks initially soared as low interest rates, stimulus checks, the growth of commission-free trading platforms, and social media buzz drove many investors toward more speculative plays.

Unfortunately, many of those space stocks crashed and burned after they broadly missed their pre-merger forecasts and racked up steep losses. Rising interest rates also popped their bubbly valuations and drove investors back toward more conservative investments. Yet a few resilient space stocks survived that wash-out.

A lunar rover on the moon.

Image source: Getty Images.

One of those stocks was Intuitive Machines(NASDAQ: LUNR), a producer of lunar landing and exploration vehicles that went public by merging with a SPAC on Feb. 14, 2023. Its stock opened at $10 on the first day, soaring to a record high of $81.99 a week later, but it now trades at around $8. That was certainly a painful pullback for the bulls who chased its initial rally, but is now the right time to buy, sell, or hold this volatile stock?

Understanding Intuitive Machines' business

Intuitive Machines mainly produces lunar landing and exploration vehicles for NASA. Before it went public, it claimed it could grow its revenue at a compound annual growth rate (CAGR) of 173%, from $102 million in 2022 to $759 million in 2024.

In reality, it only generated $86 million in revenue in 2022 and $80 million in revenue in 2023. It expects its revenue to rise to $210 million to $240 million in 2024. That slower-than-expected growth caused its stock to plummet from its all-time highs.

The slowdown was caused by several delays for its Nova-C lunar lander. The company originally planned to land the Nova-C on the moon for NASA in 2021, but that launch was repeatedly delayed until it finally achieved its first successful landing in February 2024. Those delays prevented Intuitive from locking in any new stand-alone contracts with NASA in 2022 and 2023.

But the Nova-C's successful touchdown -- which marked the first U.S. moon landing since 1972 -- convinced NASA to award it two new contracts this year: A long-term lunar terrain vehicle (LTV) contract in April, and a five-year near-space network (NSN) contract worth up to $4.8 billion in September. It's also expanding its "ridesharing" services to other clients who want to send their payloads to the moon.

The reasons to buy and hold Intuitive Machines

Based on its recent progress, analysts expect Intuitive Machines' revenue to more than double from $223 million in 2024 to $480 million in 2026. They also expect its adjusted EBITDA to turn positive in 2025 and rise more than ninefold to $42 million in 2026. With an enterprise value of $519 million, the company looks like a bargain at just 2.3 times this year's estimated sales. In comparison, another popular space stock, Rocket Lab USA, still trades at 13 times this year's sales.

Intuitive Machines also paid off all its outstanding debt this July. It only held $32 million in cash and equivalents at the end of the second quarter, which it claimed could fund its operations for at least another 12 months at the time. But it's also receiving another $150 million payment this year as the first part of its new NSN contract with NASA.

Therefore, if you think Intuitive Machines can scale up its business, fulfill its existing contracts, and tighten its relationship with NASA over the next few years, it might be a great stock to buy and hold while it still stagnates in the single digits. Declining interest rates could also drive more investors back to this speculative stock.

The reasons to sell Intuitive Machines

However, the bears will point out that Intuitive Machines has already diluted its outstanding shares by nearly 250% since its market debut to raise more cash through secondary offerings and cover its stock-based compensation. Its insiders have also sold more than four times as many shares as they bought over the past 12 months.

Intuitive Machines also isn't the only company working with NASA. It still faces plenty of competition from aerospace giants like Lockheed Martin and similar start-ups like Firefly Aerospace, Blue Origin, and Ceres Robotics.

Intuitive scored a big victory as the sole recipient of NASA's massive NSN contract, but it's still splitting NASA's LTV awards (worth up to $4.6 billion) with other similar companies. These are all firm-fixed-price contracts, so Intuitive doesn't have any real pricing power in its negotiations and might need to absorb rising costs over the next few years.

Is it the right time to buy, hold, or sell Intuitive Machines?

I wouldn't buy Intuitive Machines as a core holding for my portfolio, but I think it's still worth buying and holding as a speculative investment. It faces a lot of unpredictable headwinds, but it could generate some massive multibagger gains in the future if it matches analysts' expectations and continues to expand its fledgling business.

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Leo Sun has no position in any of the stocks mentioned. The Motley Fool recommends Lockheed Martin and Rocket Lab USA. The Motley Fool has a disclosure policy.