This SpaceX-linked AIM growth stock is up 100% this year! Time to buy?

When it comes to growth stocks, the UK often plays second fiddle to the US. American investors enjoy an abundance of tech-led opportunities such as Nvidia, Tesla and the ever-expanding world of artificial intelligence (AI) chips and space technology. The UK, by contrast, tends to lean more heavily on traditional value and income plays.

But that doesn’t mean UK innovation’s dead. In fact, the country has a proud legacy in computing, semiconductors and electronics stretching back to the early days of radar and telecoms. And while London’s AIM market might pale in comparison to the Nasdaq, one tiny Yorkshire-based tech firm is getting involved in the big time.

AIMing for the stratosphere

Filtronic (LSE: FTC) is a £331m specialist in high-frequency electronic components, with expertise in radio frequency (RF) and millimetre-wave systems. It’s headquartered in NETPark, County Durham, with two additional facilities in the UK and a manufacturing site in Maryland, USA. The company has a long history of supplying equipment for telecoms and aerospace — but its fortunes have recently taken a dramatic leap.

The share price has more than doubled in 2024, fuelled by a lucrative contract to supply power amplifiers to Elon Musk’s SpaceX. This deal alone has driven a massive 200% year-on-year revenue increase to £12.8m. And it hasn’t stopped there. In April, Filtronic signed a new agreement with European defence giant Leonardo to supply components for its cutting-edge radar systems.

These wins reflect not only rising global demand for satellite connectivity and defence electronics, but also Filtronic’s rare technical capabilities in a niche space.

However, as with any small-cap growth stock, there are risks.

Small-cap concerns

Filtronic operates in an industry that’s highly cyclical and often dependent on large, lumpy contracts. A single cancelled order could put a dent in forward guidance. Supply chain disruption, export controls and geopolitical tariffs also pose challenges — especially with cross-border clients like SpaceX. And low liquidity on AIM can lead to volatile price swings.

Plus, the valuation looks a bit stretched. After the recent surge, the stock trades on a bloated price-to-earnings (P/E) ratio of 32.2 and a price-to-book (P/B) ratio of 13.6. Both of those metrics are steep by UK small-cap standards. Further price growth from here could be limited if the company can’t convince investors that its current business trajectory has long-term staying power.

Strong financials

That said, the company’s financial position looks reassuring. The balance sheet’s clean, with a debt-to-equity ratio of just 0.12 and a quick ratio of 2.05, meaning it can comfortably cover short-term obligations. It’s also operating with impressive profitability metrics: a net margin of 24.4%, return on equity (ROE) of 58.6%, and return on capital employed (ROCE) of 52.2%.

For those willing to take on the added risk that comes with small-cap investing, I think Filtronic’s worth considering. I certainly plan to get in on the action and buy some shares once payday rolls around. This under-the-radar AIM stock might be one of the most exciting growth stock stories in the UK right now — backed by real contracts, a clean balance sheet and high returns on capital.

The post This SpaceX-linked AIM growth stock is up 100% this year! Time to buy? appeared first on The Motley Fool UK.

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Mark Hartley has no position in any of the shares mentioned. The Motley Fool UK has recommended Nvidia and Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.