3 Reasons RDW is Risky and 1 Stock to Buy Instead

April 09, 2025 at 05:08 AM EDT

RDW Cover Image

In a sliding market, Redwire has defied the odds, trading up to $7.93 per share. Its 5% gain since October 2024 has outpaced the S&P 500’s 13.8% drop. This performance may have investors wondering how to approach the situation.

Is there a buying opportunity in Redwire, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.

We’re glad investors have benefited from the price increase, but we're cautious about Redwire. Here are three reasons why you should be careful with RDW and a stock we'd rather own.

Why Is Redwire Not Exciting?

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

1. EPS Trending Down

Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.

Redwire’s earnings losses deepened over the last four years as its EPS dropped 57% 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.

2. Cash Burn Ignites Concerns

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.

While Redwire posted positive free cash flow this quarter, the broader story hasn’t been so clean. 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 13.6%, meaning it lit $13.58 of cash on fire for every $100 in revenue.

Redwire Trailing 12-Month Free Cash Flow Margin

3. Short Cash Runway Exposes Shareholders to Potential Dilution

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 $23.75 million of cash over the last year, and its $149 million of debt exceeds the $49.07 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.

Final Judgment

Redwire’s business quality ultimately falls short of our standards. With its shares topping the market in recent months, the stock trades at 10.9× forward EV-to-EBITDA (or $7.93 per share). At this valuation, there’s a lot of good news priced in - we think there are better investment opportunities out there. Let us point you toward a top digital advertising platform riding the creator economy.

Stocks We Like More Than Redwire

Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.

While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free.

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