Covington, La.-based mobile satellite services provider Globalstar, Inc.’s (GSAT) offerings include voice and data communications services. Its shares have soared 83.1% in price over the past month to close Friday’s trading session at $2.60, due mainly to speculation that Apple Inc.’s (AAPL) new iPhone will include satellite communications technology. TFI International Securities analyst Ming-Chi Kuo said recently that GSAT would most likely partner with AAPL. However, many analysts dispute this speculation, arguing that a custom chip would improve existing 5G connectivity.

Focused on a niche area, GSAT faces competition from Iridium Communications Inc. (IRDM) and ORBCOMM Inc. (ORBC). Furthermore, GSAT’s top line declined in the second quarter (ended June 30, 2021). In addition, its decline in Duplex subscribers is expected to continue in the near term, and its SPOT segment’s average revenue per unit (ARPU) could also continue to decrease. So, its near-term prospects look bleak.

Here are the factors that we think could influence GSAT’s performance in the coming months:

Recent Advancements in SPOT Gen4 May Not Be Enough to Drive Growth

Globalstar Europe Satellite Services Ltd, a wholly owned subsidiary of GSAT, announced on August 9 that Fédération Française de Vol Libre had procured GSAT’s SPOT Gen4 satellite GPS messengers to track and safeguard people who participate in free flight sports. Yorkshire Peat Partnership also selected the SPOT Gen4 Satellite GPS messengers in July 2021 to track and protect scientists and surveyors working across Yorkshire’s remote upland moors.

However, GSAT’s SPOT segment’s service revenue declined 3.8% year-over-year to $11.14 million in the second quarter (ended June 30, 2021) due to a decline in ARPU. Also,  its ARPU is expected to continue to decrease in the near term, particularly in periods with a high volume of activations.

Weak Financials

GSAT’s total revenue came in at $30.28 million for the second quarter, ended June 30, 2021, versus $30.36 million in the year-ago period. The company’s total average subscribers declined 1.5% year-over-year to 745,617. Its loss from operations increased 4.1% year-over-year to $16 million. And its net loss came in at $21.45 million in the quarter, compared to $24.74 million in the prior-year quarter. Its $0.01 loss per share  remained unchanged.

Unfavorable Analyst Sentiment

Analysts expect GSAT’s revenue to decline 13.3% in the current quarter (ending September 31, 2021) and 13.7% in the next quarter. In addition, its revenue is expected to decrease 8.3% year-over-year to $117.80 million in its fiscal year 2021. Its EPS is expected to remain negative in the current year and next year. Wall Street analysts expect the stock to hit $1.90 in the near term, which indicates a potential 26.9% decline.

POWR Ratings Reflect Bleak Prospects

GSAT has an overall D rating, which equates to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight different categories. GSAT has a C grade for Quality, which is in sync with its negative values for trailing-12-month ROCE, ROTC, and ROTA, compared to the  8.48%, 4.01%, and 2.67% respective industry averages.

Moreover, the stock has an F grade for Value, which is consistent with its significantly higher-than-industry valuation ratios. In terms of forward EV/S, GSAT’s 42.34x is 1,573.5% higher than the 2.53x industry average. Also, its 151.03x and 39.57x respective forward EV/EBITDA and P/S are higher than the 9.91x and 1.77x industry averages.

GSAT is ranked #18 of 21 stocks in the Telecom – Domestic industry. Click here to see the additional POWR Ratings for GSAT (Growth, Momentum, Stability, and Sentiment).

Bottom Line

While GSAT has been making some positive developments, its services are available only with equipment designed to work on its two-way voice communication network, data transmissions, and one-way data transmissions. Also, it is uncertain if AAPL will partner with the company. Moreover, GSAT looks significantly overvalued considering its bleak growth prospects. So, we think it could be wise to avoid the stock now.

How Does Globalstar (GSAT) Stack Up Against its Peers?

While GSAT has an overall POWR Rating of D, one might want to consider investing in Telecom - Domestic stocks SBA Communications Corporation (SBAC) and AT&T Inc. (T), which are rated B (Buy).

GSAT shares fell $0.37 (-14.23%) in premarket trading Monday. Year-to-date, GSAT has gained 588.13%, versus a 20.62% rise in the benchmark S&P 500 index during the same period.

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.

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