ARKX: The Better ARK ETF

seekingalpha07-24

ARKX is an actively managed ETF focused on space exploration and innovation, seeking long-term capital growth.The small satellite market is rapidly growing, with advancements in technology and laser ...

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Arctic-Images/DigitalVision via Getty Images When I first walked to my very first day of work at the beloved NYC World Trade Center back in 1986, I could never have imagined I’d be writing about investment in space exploration. Heck, that was less than 20 years after we had first landed on the moon! But here we are, in 2024, with space on the table, so to speak. And, while there are some individual stocks to consider in this, pardon the pun, “space” an ETF from an unlikely source, ARK Management, caught my attention. And for the patient, I think it has a future. I say an unlikely source because I am not a fan of ARK’s flagship product, which is focused on “innovation.” I think it’s focused on overpriced, overhyped stocks that are a mix of next-generation market leaders, and a ton of companies that will disappoint investors when the era of “cheap money” finally ends. OK, that’s all on the ARK Innovation Fund (ARKK) for now. Let’s turn the focus to the $230 million ARK Space Exploration and Innovation ETF (BATS:ARKX), which opened just over 3 years ago. It is an actively managed ETF, and the first thing that struck me about it is that its top 10 holdings are not filled with the usual suspects in the tech world. So this one is different, not a closet tech fund. Space: the current frontier Few opportunities get the imagination spinning as much as the exploration of space. It has been over 60 years since the first satellite and the first human were launched into the atmosphere. Through the many decades, unknowns still remain large, while the ideas and innovation continue to spark. ARK Space Exploration & Innovation ETF (ARKX) ventures into the realm of what the next technological advancements toward space expedition can be. This is a growth fund, without a doubt. The question for potential investors is whether that growth will come, and when. The portfolio is concentrated, with just 8 stocks accounting for more than 50% of assets. That could be a boon to ARKX if a few of those take off (pardon that pun).   Seeking Alpha As shown below, there’s not much dividend yield here. And the 40 stock portfolio has a weighted average PE Ratio of 32.5x, so it is not cheap, even when considering 5-year projected earnings growth of 14%. Fundamentals  General  Distribution Yield 0%   Dividend Yield TTM (7-23-24) 0%   30-Day SEC Yield --   7-Day SEC Yield --   Number of Holdings 40  Stock  Weighted Average PE Ratio 32.51   Weighted Average Price to Sales Ratio 2.618   Weighted Average Price to Book Ratio 3.106   Weighted Median ROE 6.92%   Weighted Median ROA 2.31%   Forecasted Dividend Yield 1.32%   Forecasted PE Ratio 26.16   Forecasted Price to Sales Ratio 2.272   Forecasted Price to Book Ratio 3.038   Click to enlarge As of July 19, 2024 Growth Estimates   Forecasted 5 Yr Earnings Growth 14.21%   Forecasted Book Value Growth 0.61%   Forecasted Cash Flow Growth 6.78%   Forecasted Earnings Growth 6.22%   Forecasted Revenue Growth 13.14%   Click to enlarge As of July 19, 2024 Quant Factor Grades These are the 6 stocks which currently have at least a 5% weighting in ARKX. This is a mixed picture, which implies that this is not a portfolio of sustainable growers. it is far from being compared to private equity, but this is not high quality, it is high potential if the market rewards the space theme in the coming years.     KTOS IRDM TER AVAV TRMB LHX   Valuation C D F F D D   Growth B A+ C+ A D+ C-   Profitability C- A- B+ D+ B- B+   Momentum B+ D- A A C+ B   EPS Revisions B C- B C+ B- A   Click to enlarge Here’s a bit more on some of the largest holdings in this ETF: Kratos Defense & Security Solutions, Inc. (KTOS): Provides advanced engineering, technology, and services to the U.S. Department of Defense by developing and fielding transformative, affordable technology, platforms, and systems. AeroVironment, Inc. (AVAV): Operates under a single business segment in which it supplies unmanned aircraft systems, tactical missile systems, high-altitude pseudo-satellites, and other related services to government agencies within the United States Department of Defense as well as the United States allied international governments. Iridium Communications Inc. (IRDM): Operates in the satellite communications industry. They are best known for operating the Iridium satellite constellation, which provides global satellite communications services. The Iridium network consists of 66 operational satellites in low Earth orbit, offering voice and data services to businesses, governments, and individuals worldwide. Teradyne, Inc. (TER): Provides testing equipment, including automated test equipment for semiconductors, system testing for hard disk drives, circuit boards, and electronics systems and wireless testing for devices. As aerospace companies develop advanced electronics and communication systems for satellites, spacecraft, and related equipment, Teradyne's solutions get utilized. Satellite tech leads the way Small satellites have become a leading trend in space technology, especially in 2024. Their miniaturization allows for cost-effective designs, and advancements in wireless communications networks, scientific observation, data gathering, and Earth monitoring using GPS. The small satellite market is estimated to be valued at $166 billion in 2024 and is expected to reach more than $260 billion by 2029. The use of laser communication relay systems offers faster data rates and more secure communication compared to traditional radio frequency systems. The increasing number of satellites and space debris in Earth’s orbit calls for improved space traffic management. Advanced satellite tracking systems employ radar and optical sensors to actively monitor and predict potential collisions. The biggest name far and away in the space industry recently is SpaceX. The tough news for ARKX is that SpaceX is a private company and is gaining more traction every year. The Elon Musk created company is dominant in satellite launches, and it’s not even close. There's a notable increase in private companies participating in space exploration, driven by advancements in technology, reduced launch costs, and increasing investor interest. These companies are pushing boundaries with ambitious goals in satellite deployment, crewed missions, and space tourism. The emergence of private space companies has increased competition. This is great for space exploration and utilization as an industry. These private companies have been taking on significant investment in in-orbit research and development. They have also pioneered the advancement of space research facilities, which has mitigated financial and operational risks for the public sector. For ARKX, and other space-based ETFs, the private competition results in less investment directly into the stock market. Institutional and private investors looking to put their money into space exploration may be finding ways to put their dollars towards known private companies like SpaceX and Blue Origin. The presence of aerospace and defense stocks is a big help here The aerospace and defense sector encompasses a broad range of activities related to the design, development, production, and maintenance of aircraft, helicopters, missiles, satellites, and spacecraft. It primarily focuses on national security, defense capabilities, and commercial aviation. In contrast, space exploration refers specifically to the scientific discovery, exploration, and utilization of outer space. It involves sending satellites, probes, and crewed missions to study celestial bodies and conduct research of new frontiers. Albeit they are slightly different avenues but definitely in the same realm of business and investment. Conclusions Sector wise, space exploration may be lagging, but within the specific industry, ARKX could lead the way. As humanity looks skyward with renewed interest and investment, ARKX stands as a testament to the belief that the commercialization of space is not just inevitable, but also lucrative.  With holdings ranging from satellite technology to aerospace innovation, ARKX is positioned at the forefront of an industry with room for exponential growth. I am not jumping out of my seat to own this ETF just yet, but that has a lot to do with its currently stagnant chart pattern and the overhang of high valuations in ARKX’s biggest stocks. So I will rate it a hold for now.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"1","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.2","shortVersion":"4.29.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2453736883"}