As billionaires Jeff Bezos and Richard Branson blasted off for joy flights this year, investors' thoughts have turned to space.

For many decades, the prohibitive cost of sending humans outside earth meant space travel was monopolised by the public sector.

But this is no longer the case, according to Nucleus Wealth head of investments Damien Klassen.

"For me, what is incredible is the pace of cost reductions being seen in the sector," he said on the Nucleus blog. 

"Elon Musk's SpaceX has brought the cost of launching equipment into space down by a factor of 10. And there is a realistic roadmap to bringing it down by another factor of 10."

He pointed out that only 20 years ago solar power was "a novelty", but after dramatic cost reductions, it is now transforming the energy industry.

"The question is, what sectors could be affected by a similar change? What emerging trends should we be watching today?" 

Klassen said the entry of the private sector makes the new space race very exciting.

"Plus it is an interesting hedge on the continued souring of US-China relations. If the space sector isn't at least on your radar, it should be."

How to get exposure to the space sector

There are many ways to invest in the space industry in overseas markets.

Mammoth US defence contractors, like Boeing Co (NYSE: BA) and Lockheed Martin Corporation (NYSE: LMT), are one path.

"But space investment is only a part of a very large company. And they are often not working on some of the cutting edge technology."

Klassen mentioned that there are a couple of space-themed exchange-traded funds in the US too: Procure Space ETF (NASDAQ: UFO) and ARK Space Exploration & Innovation ETF (BATS: ARKX).

But as for ASX shares, he named 4 companies.

"Electro Optic Systems Hldg Ltd (ASX: EOS) is the biggest of the crew," said Klassen.

"Brainchip Holdings Ltd (ASX: BRN), Xtek Ltd (ASX: XTE), and Kleos Space SA (ASX: KSS) round it out."

The Australian companies are small caps, so there is considerable risk compared to the much larger overseas investments.

"If you are looking for Australian stocks, then be prepared for some red ink on your P&L," Klassen said.

"You need to be comfortable with the product and see a path to profitability."

He warned investors to avoid buying "a dream".

"If there is another space race, you can expect most defence contractors to benefit. That will not be the case for smaller stocks."

Electro Optic Systems shares have lost 37% for the year, while Xtek has shaved 26% off its value. Meanwhile, Brainchip has gained 10.5% so far in 2021 and Kleos Space has returned a handsome 56.5%.

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The Kleos Space SA (ASX: KSS) share price marched ahead today despite a lack of announcements during the trading session. The satellite reconnaissance company's shares finished up 6% higher to 71 cents per share.

With no news out today, it might be worth looking at recent developments to understand what could have the market excited.

Kleos share price tapping US interest?

The volume of shares traded today (more than 1.13 million) was abnormally high considering its last announcement was on 12 March. At that time, Kleos provided an investor presentation specifically for United States public market investors. Since that release, the company's shares have gained nearly 14%.

Kleos' service is focused on collecting radio spectrum data via orbiting satellites. This information is beamed back to Earth, where it is then processed with the Kleos' algorithms.

From there, the valuable data is delivered to its clients. Currently, those clients are mostly Five Eyes organisations and agencies homing in on illegal activities.

There are a few reasons the presentation could be driving shares higher. Firstly, there is potential that some US investors liked the proposition and have gone ahead and invested. Secondly, as the information is available to the ASX, potentially local investors found a few valuable nuggets in the slides.

Lastly, the second satellite cluster launch around mid-year is fast approaching. The nearing of that particular event could have investors scrambling to accumulate.

SpaceX Starship seems feasible

Another potential catalyst for the Kleos share price is the recent developments in Space X's Starship.

The 50m tall rocket has been under development for years now as an ambitious endeavour to reduce space flight costs further. On 5 March, the rocket managed to make a return landing on the launch platform before later exploding.

SpaceX released new high definition video of Starship SN10's landing earlier this month: https://t.co/X9DiV5w6Ow pic.twitter.com/1JZdcJY9f6

— Michael Sheetz (@thesheetztweetz) March 17, 2021

Due to the rocket's size, if successful, it would be able to carry a far greater number of satellites/people in the future. Thereby decreasing the per kilogram cost for sending into space.  

This is an exciting potential for a company like Kleos, as it may significantly reduce one of its highest operation costs – getting the satellite into space to begin with. 

Accounting for today's gain in the Kleos share price, the company now has a market capitalisation of $107 million.

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The Kleos Space SA (ASX: KSS) share price is edging lower today despite announcing a new agreement with rideshare provider Spaceflight Inc. At the time of writing, the satellite infrastructure company's shares are down 1.6% to 60 cents.

What did Kleos announce?

The Kleos share price in the red during early-afternoon trade as investors seem unmoved by the company's update.

According to its release, Kleos advised that it has signed a new contract with Spaceflight. The agreement is to launch its third cluster satellite, codenamed the 'KSF2 Polar Patrol' mission. The launch is expected to take place sometime in December 2021 aboard a SpaceX Falcon 9 rocket.

Kleos revealed that the four KSF2 satellites will enter a sun-synchronous orbit (SSO) at a height between 500 kilometres to 600 kilometres. An SSO travels over the Earth's atmosphere in the same 'fixed' position relative to the sun.

The KSF2 satellites will be deployed to complement the company's first and second existing satellite clusters. This will allow Kleos to increase its coverage over vast areas over key maritime interests. As such, this enables improved detection of illegal activity like drug and people smuggling, illegal fishing, and border and security breaches.

The company also noted that its second satellite cluster, the Polar Vigilance mission, is on track for the mid-2021 launch. This will also be boarded on a SpaceX Falcon 9 rocket.

CEO commentary

Kleos Space CEO Andy Bowyer touched on the company's progress, saying:

The launch of our third satellite cluster will further improve the frequency and value of Kleos' radio frequency intelligence data, generating higher-value datasets and further tiered subscription licence options. While Kleos is targeting a constellation of up to 20 satellite clusters, each cluster will increase the volume of data that can be sold and provide further insights as to activity in key areas of interest for our customers.

While we progress, our constellation roll-out with the launch of our second and third satellite clusters, we continue to focus on securing and building a new subscriber base. Data delivery from the Scouting Mission satellites allows us to commence revenue generation from early adopter and test contracts.

Kleos share price review

The Kleos share price has soared 146% higher over the course of the past 12 months. The company's shares hit a low of 15 cents last March before gradually moving higher. In November, its shares reached a record high of 92.5 cents.

Based on current valuations, Kleos commands a market capitalisation of around $98.5 million.

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Thursday night last week, space stocks popped on Wall Street. Shares in Virgin Galactic Holdings Inc (NYSE: SPCE), Maxar Technologies Inc (NYSE: MAXR), and Stable Road Acquisition Corp Class A (NASDAQ: SRAC) all jumped more than 19%.

The reason? The announcement of an actively managed space exploration ETF from Cathie Wood's ARK Investment Management. Although the holdings of the ETF are unknown, the market obviously has already begun speculating. Which leads us to the question, what sort of exposure does the ASX space sector offer?

But before we get ahead of ourselves, let's cover why investors are paying attention to what one managed ETF is doing.

A bit of background on Cathie Wood and ARK

If the name Cathie Wood doesn't ring a bell, I would be very surprised. The founder and CEO at ARK Invest has become known as somewhat of a modern Warren Buffett. Although, between the two, there aren't too many similarities in investing style.

Buffett is known for his investments in cash-generative businesses that are fundamentally undervalued and being a champion for passive investing through index funds. On the contrary, Cathie Wood invests heavily based on growth.

Cathie Wood began her rise to prominence in 2019 when ARK Invest set a bull case pre-split price target on Tesla Inc (NASDAQ: TSLA) of US$7,000. At the time, Tesla shares were trading between US$200 to US$250. Many market commentators shrugged this off as crazy, unrealistic, and a pipe dream.

People started to wake up and pay attention to Cathie and ARK Invest through 2020, as Tesla broke out and ran, while Cathie's actively managed ETFs substantially beat the broader market returns. For example, the flagship ARK Innovation ETF returned 133% in 2020.

It's out of this world

According to ARK Invest's website, the space exploration ETF will seek to provide exposure to companies involved in space-related businesses. These include reusable rockets, satellites, drones, and other orbital and sub-orbital aircraft.

ARK stated that the ETF would be looking for companies that are "[l]eading, enabling, or benefitting from technologically enabled products and/or services that occur beyond the surface of the Earth."

The ETF will be actively managed, and the typical number of holdings will be between 30 to 50.

So, are there any companies on the ASX that would fit the bill?

It's slim pickings for ASX space shares

Unfortunately, the truth is there aren't too many ASX-listed companies that have exposure to space exploration. However, we'll cover a few that dabble in that realm.

Electro Optic Systems Hldg Ltd (ASX: EOS)

Electro Optic Systems (EOS) develops and produces a range of electro-optic technologies in the aerospace sector. The company is Australia's largest aerospace entity and the largest defence exporter in the southern hemisphere.

EOS grew in 2019 by acquiring EM Solutions to build out its own satellite communications offering. In its half-year results, the company indicated that it would continue to monetise its space technology in the communications and defence sectors.

In late 2020, EOS announced its own Medium-Earth Orbit (MEO) satellite constellation, EOS SpaceLink. The company expects it to be launched and operational in 2024 with positive operating cash flow. 

As of the half-year report, the company indicated a $570 million project backlog. EOS shares are down 37.7% in the last year. The company now has a market capitalisation of $863.07 million.

Xtek Ltd (ASX: XTE)

Xtek is aiming to predominantly draw revenue from its manufacturing of ballistic materials using its proprietary XTClave technology. The unique method allows the protective material to be made with a higher projectile resistance-to-weight ratio.

However, the benefit of this technology is that it can be applied to many other applications outside of just ballistic products. According to the company, the lightweight product also bodes well for manufacturing materials to be used in spacecraft and other space-related equipment. In fact, in June 2020 Xtek, in conjunction with Skykraft Pty Ltd, was given a grant to develop a small satellite launch stack.

Shares in Xtek are down 17.39% over the last 12 months. The company now has a market capitalisation of $38.61 million.

Kleos Space SA (ASX: KSS)

Kleos is a bit of a unique company in terms of what it does. The company uses satellites to deliver a global image of covert maritime activity. This is used by intelligence agencies and governments when traditional geospatial intelligence doesn't suffice, due to weather, distance, or sea state. Hence, Kleos brands itself as an RF reconnaissance data-as-a-service provider.

In May 2020, Kleos was awarded a contract on the Micro-Satellite Military Utility (MSMU) project. This entails Kleos' data being made available to the MSMU project, which involves the Departments of Ministries of Defense of Australia, Canada, Germany, Italy, Netherlands, New Zealand, Norway, United Kingdom, and the United States.

Late last year, the company announced it had successfully placed 4 of its satellites into orbit after launching from India. This will enable Kleos and its government partners to detect maritime activity such as drug and people smuggling, piracy, and illegal fishing. 

The company anticipates revenue to be derived from the satellites from the first quarter of FY2021. Currently, agreements are in place with the US Airforce, L3Harris Technologies Inc (NYSE: LHX), and other government entities. The annual licensing fees for the first cluster of satellites will be between $128,000 and $971,000 per license and the number of initial licenses targeted is around 130. 

Kleos shares are up 71.62% for the last year. The company now has a market capitalisation of $97.34 million.

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The Kleos Space (ASX: KSS) share price has fallen 6.40% at the time of writing to 80 cents after a trading halt of the company's securities was lifted. The company announced a capital raising today, which will consist of a placement to institutional and sophisticated investors. 

The Kleos Space placement

Kleos raised approximately $19 million from institutional and sophisticated investors at a price of 72 cents per share. This was a discount of 16.3% to the previous closing price of 86 cents per share. 

According to the company, the proceeds of the placement will be used for:

• funding the company beyond the launch of its second cluster of satellites to end 2021
• accelerating development of the company's third cluster of satellites
• sales and marketing
• working capital
• funding the costs of the placement

The placement will be conducted in 2 tranches with the first $7.2 million issued in accordance with the ASX listing rules and shareholder approval at a general meeting required for the remaining $11.8 million.

What else has Kleos been up to?

According to Kleos, the company successfully launched its first cluster of 4 satellites on 7 November 2020. The satellites will provide radio frequency data for its customers, allowing them to monitor activity in a number of maritime locations.

The Kleos satellites will detect maritime activity that, according to the company, is otherwise undetectable and includes uses such as defence and national security along with the intercept of criminal activity.

The company expects that the satellites will provide revenue from the first quarter of FY2021, with agreements already in place with the US Airforce, L3Harris Technologies Inc (NYSE: LHX) and multiple government entities. The annual licensing fees for the first cluster of satellites will be between $128,000 and $971,000 per license and the number of initial licenses targeted is around 130. Kleos expects growth in its subscriber base over time.

Kleos plans to launch its second cluster of satellites on the SpaceX Falcon 9 rocket in mid 2021, which it expects will provide an opportunity to generate further revenue.

About the Kleos share price

Kleos shares are up 433% from their 52-week low of 15 cent and up 158.06% since the beginning of the year. The Kleos share price is up 128% since this time last year.

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The Kleos Space SA (ASX: KSS) share price is in the spotlight today. Kleos shares are rocketing at the time of writing, up 21.37% to 80 cents a share after closing at 66 cents a share yesterday and opening at 69 cents this morning.

Whilst today's move might seem dramatic, it's just the latest gain for Kleos shareholders, who have had a truly fantastic month. Kleos shares were 28 cents each at the start of October, which means they have risen by more than 185% since 1 October. The shares are up more than 150% year to date, and more than 400% since the company's IPO in August 2018.

So what is this high-growth share? And why is it exploding even higher today?

Kleos shares: an introduction

According to the company, Kleos Space was founded in 2017 by "experienced Space engineers". The plan was to develop a "new Space enabled Data-as-a-Service concept and disruptive in-Space technologies."

Kleos is dual-listed, sitting on the ASX as well as Germany's Frankfurt Stock Exchange, and is based in Luxembourg.

The company operates satellites and satellite infrastructure that collect radio frequency information. It states that "rather than observing the Earth in the visible domain as you would with cameras, Kleos is observing it in the 'radio frequency' part of the spectrum using antennas".

By using its satellites in conjunction with each other, it can identify where radio signals are coming from on the Earth. It's a sort of "reverse GPS", as the company describes the technology.

In this way, Kleos can determine whether signals it receives are coming from legitimate activity, or activity that might indicate an illegal operation, particularly in the maritime space. Thus, Kleos can assist with finding illegal fishing, smuggling and trafficking operations, and monitoring national borders. It sells this data as a service to governments and companies.

Fly me to the moon

Kleos has been progressing its scouting satellites program over the past month. This program aims to deliver commercially available data as well as demonstrate the company's technology, underpinning plans for future expansion.

Kleos has a ride-share contract with the US-based Spaceflight Inc., and has four satellites at  'mission-ready' status, where they have been since since the middle of 2019. They were ready to go at the launch site in February 2020, with the launch planned for March before the coronavirus pandemic delayed launch operations.

However, back in September, Kleos told investors that it has a new tentative launch date for early November, which saw a jump in the Kleos share price at the time. Today, this has been reaffirmed. Kleos told the markets this morning that it expects the launch to take place on Saturday 7 November. This will be the first phase of the satellite's lifecycle, known as "the Launch and Early Orbit Phase".

According to today's announcement, this "is a critical phase of the mission, covering launch, deployment and in orbit commissioning to handover to the Mission Operations Team to enact day to day operations and data generation activities."

It's estimated that this phase will last 9–12 weeks. After that, the satellite will undergo a handover to the Missions Operations Team for the next stage.

Judging by the enthusiastic reaction of the markets this morning to the news, investors appear to be relieved to have some firm dates from Kleos. 

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Small cap ASX shares typically do not move in tandem with the general market. This is due to the market's size, liquidity and the standalone nature of its speculative businesses. Despite the S&P/ASX 200 Index (ASX: XJO) nosediving in the latter half of October, many small cap ASX shares continued to deliver eyewatering returns. Here are the best performing small cap ASX shares this month. 

1. E2 Metals Ltd (ASX: E2M) 

The E2 Metals share price spiked 200% in October after exceptional gold and silver drill results at its Mia prospect, Conserrat project, located in the Santa Cruz province of Argentina. Moving forward, the company has planned for further drilling to better define the structural context and controls on mineralisation. 

2. Pioneer Credit Ltd (ASX: PNC) 

Pioneer Credit is a financial services provider involved in acquiring and servicing unsecured retail debt portfolios. The company was involved in a controversial trading halt late 2019 after being in breach of debt and other covenants due to its accounting methods. This involved financiers acquiring the company's debt and new replacement debt facilities coming into play to save the company. 

This month's quarterly update highlighted what could be the beginning of a recovery story with the company highlighting a successful refinance and improved market conditions. The Pioneer Credit share price has increased 135% in October. 

3. Kleos Space SA (ASX: KSS) 

Kleos is a space-powered Radio Frequency Reconnaissance data-as-a-service (DaaS) company to clients in the defence, commercial and regulatory sectors. The Kleos Space share price increased 142% this month following a series of announcements regarding satellite contracts and launches.

On 22 October, the company announced the signing of four satellites for the Polar Vigilance Mission to increase its global coverage and broaden revenue opportunities. And on October 29, the company announced the final preparations before the launch of its scouting mission satellites scheduled for 7 November. The satellites will collect data over crucial areas of interest such as the Strait of Normuz, South China Sea, East/West Africa, Southern Sea of Japan and Northern Australian coast.  

4. Weebit Nano Ltd (ASX: WBT) 

The Weebit Nano share price has cooled off in recent days after delivering a peak return of almost 200% in October. The company develops next generation memory technology and plans to become a key player in this market. Weebit focuses on producing Resistive Random-Access-Memory (ReRAM) technology that is 1000 times faster and uses 1000 times less power than flash. 

Its shares have attracted significant trading volumes in the last three months which is likely to assist in its share price outperformance. The company's quarterly update was also significant with highlights including a key productisation milestone, progressing embedded memory module development, filing three new patents and progressing discussions with potential production partners and customers. 

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The Kleos Space SA (ASX:KSS) share price is today taking off as the company provided an update on its scouting mission launch. The Kleos share price has risen by 7.55% to 28 cents on the news.

What is Kleos Space?

Kleos is a space powered radio frequency reconnaissance company. Kleos aims to guard borders, protect assets and save lives by delivering global activity-based intelligence and geolocation as a service. The Luxembourg company provides data as a service (DaaS) to its clients.

Furthermore, its upcoming cost-effective global geolocation data will be critical in the enforcement of law and regulation.

The first Kleos Space satellite system, known as Kleos Scouting Mission (KSM), will deliver commercially available data and perform as a technology demonstration. KSM will be the keystone for a later global high capacity constellation. The scouting mission will deliver targeted daily services with the full constellation delivering near-realtime global observation.

Why is the Kleos share price rocketing?

This morning, the company reported an update on the launch of KSM on the Indian Space Research Organisation's latest mission. The company is launching scouting satellites under a ride-share contract with Spaceflight Inc, with the launch managed by NewSpace India Limited (NSIL). 

The Kleos Scouting Mission's four satellites have been mission-ready since the middle of 2019. They were shipped to the launch site in February 2020, with the launch expected in March. However, the COVID-19 pandemic has delayed launch operations.

The company has been updated on a new launch date for the four Kleos satellites, with current planning aiming for the 1st half of November. However, Kleos noted the schedule was subject to change depending on operational circumstances beyond NSIL control. 

Foolish takeaway

the Kleos share price has gained a little over 80% since listing on the ASX in late 2018. The monitoring company generated no revenue for its half year ending 30 June 2020, but the Kleos scouting mission offers attractive future potential. The Kleos share price is down 8% for the year.

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