Electro Optic Systems (ASX: EOS) is an ASX listed aerospace and defence company, with its main businesses across both those segments. The company uses lasers to develop systems that improve spatial awareness in space, thereby preventing collisions with space junk. Space junk flies at extremely fast speeds, meaning an object the size of a small pebble could cause damage to a part of a satellite that requires the satellite to be repaired. This is simply down to speed and represents a huge and growing problem within the space industry. The value of satellites is now $1tn, so it is easy to appreciate the importance of what EOS has to offer.
Great product execution and an order backlog drove strong gains in EOS’ share price (Credit: Australian Manufacturing)
They also have a defence business, which supplies the Australian military, as well as allies like the US. They are developing new products that are well-liked by the military and are likely to boost revenue. The advantage of that for EOS is the component parts to modules are easily replaceable, as compared to competitors where the whole module needs to be replaced. This can be beneficial on the front line, where the ease of replacing a component part saves time. Additionally, the products also save money for military clients over the long run, since they don’t need to replace entire systems when something goes wrong.
EOS also introduced a new business segment at the end of the last quarter, which will operate in space communications. The development of this unit was triggered by technology breakthroughs in the company’s research for other business units and represents an exciting opportunity in a rapidly growing industry. Additionally, the acquisition of EM Solutions, an established space communication company, will support the transition.
Nevertheless, at 40.9 times earnings, much of this news is already in the price. Investors will need to consider the company’s valuation carefully since the company needs to execute well to justify the current valuation.
This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
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