Redwire (RDW)

Aerospace and defense company Redwire (NYSE:RDW) missed Wall Street’s revenue expectations in Q1 CY2025, with sales falling 30.1% year on year to $61.4 million. On the other hand, the company’s full-year revenue guidance of $570 million at the midpoint came in 32.2% above analysts’ estimates. Its GAAP loss of $0.09 per share was 76.3% above analysts’ consensus estimates.

Company Overview

Based in Jacksonville, Florida, Redwire (NYSE:RDW) is a provider of systems and components used in space infrastructure.

Aerospace companies often possess technical expertise and have made significant capital investments to produce complex products. It is an industry where innovation is important, and lately, emissions and automation are in focus, so companies that boast advances in these areas can take market share. On the other hand, demand for aerospace products can ebb and flow with economic cycles and geopolitical tensions, which can be particularly painful for companies with high fixed costs.

Redwire’s peers and competitors include Kratos Defense (NASDAQ:KTOS) and Lockheed Martin (NYSE:LMT).

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Thankfully, Redwire’s 42.1% annualized revenue growth over the last four years was incredible. Its growth beat the average industrials company and shows its offerings resonate with customers.

Long-term growth is the most important, but within industrials, a stretched historical view may miss new industry trends or demand cycles. Redwire’s annualized revenue growth of 22.4% over the last two years is below its four-year trend, but we still think the results suggest healthy demand.

This quarter, Redwire missed Wall Street’s estimates and reported a rather uninspiring 30.1% year-on-year revenue decline, generating $61.4 million of revenue.

Looking ahead, sell-side analysts expect revenue to grow 83.1% over the next 12 months, an improvement versus the last two years. This projection is eye-popping and indicates its newer products and services will catalyze better top-line performance.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Redwire’s high expenses have contributed to an average operating margin of negative 16.8% over the last five years. Unprofitable industrials companies require extra attention because they could get caught swimming naked when the tide goes out. It’s hard to trust that the business can endure a full cycle.

Looking at the trend in its profitability, Redwire’s operating margin might fluctuated slightly but has generally stayed the same over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

Redwire’s operating margin was negative 23.3% this quarter. The company's consistent lack of profits raise a flag.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Redwire’s earnings losses deepened over the last four years as its EPS dropped 38.9% annually. We tend to steer our readers away from companies with falling EPS, where diminishing earnings could imply changing secular trends and preferences. If the tide turns unexpectedly, Redwire’s low margin of safety could leave its stock price susceptible to large downswings.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Redwire, its two-year annual EPS declines of 6.6% show it’s still underperforming. These results were bad no matter how you slice the data.

In Q1, Redwire reported EPS at negative $0.09, up from negative $0.17 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street is optimistic. Analysts forecast Redwire’s full-year EPS of negative $2.26 will reach break even.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Redwire’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 17.9%, meaning it lit $17.92 of cash on fire for every $100 in revenue.

Taking a step back, an encouraging sign is that Redwire’s margin expanded by 21.9 percentage points during that time. In light of its glaring cash burn, however, this improvement is a bucket of hot water in a cold ocean.

Redwire burned through $46.87 million of cash in Q1, equivalent to a negative 76.3% margin. The company’s cash flow turned negative after being positive in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Redwire’s five-year average ROIC was negative 38%, meaning management lost money while trying to expand the business. Its returns were among the worst in the industrials sector.

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

Redwire burned through $71.82 million of cash over the last year, and its $126.2 million of debt exceeds the $54.22 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.

Unless the Redwire’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.

We remain cautious of Redwire until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.

We were impressed by how significantly Redwire blew past analysts’ EPS expectations this quarter. We were also glad its full-year EBITDA guidance trumped Wall Street’s estimates. On the other hand, its revenue missed significantly and its EBITDA fell short of Wall Street’s estimates. Overall, this print was mixed but still had some key positives. The stock traded up 15.9% to $13.10 immediately after reporting.

Updated: May 15, 2025 at 11:13 PM EDT

Are you wondering whether to buy Redwire or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

Redwire’s business quality ultimately falls short of our standards. Although its revenue growth was exceptional over the last four years and is expected to accelerate over the next 12 months, its relatively low ROIC suggests management has struggled to find compelling investment opportunities. And while the company’s rising cash profitability gives it more optionality, the downside is its declining EPS over the last four years makes it a less attractive asset to the public markets.

Redwire’s EV-to-EBITDA ratio based on the next 12 months is 16.2x. This valuation tells us a lot of optimism is priced in - we think there are better investment opportunities out there.

Wall Street analysts have a consensus one-year price target of $22.83 on the company (compared to the current share price of $13.02).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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