Gogo Inc. (GOGO - Get Rating) in Chicago, provides broadband connectivity services to the aviation industry in the United States and internationally. It operates through Commercial Aviation North America (CA-NA), Commercial Aviation Rest of World (CA-ROW), and Business Aviation (BA) segments. GOGO shares have gained 87.3% in price over the past year and 28.5% over the past six months. The stock has gained 47.6% year-to-date to close the last session at $19.97. The stock has been surging in price on the company’s progress with its 5G deployments and its inclusion in the S&P SmallCap 600 Index.

In January, GOGO announced the completion of its seven-tower 5G testbed as part of the deployment of its nationwide 5G Air-to-Ground (ATG) network. It is working with Airspan Networks Inc., a subsidiary of Airspan Network Holdings Inc. (MIMO), a software and hardware provider for 5G network solutions. GOGO plans for the rapid deployment of additional sites throughout the first half of 2022 and to launch its 5G ATG network in the second half of the year, leverage MIMO’s advanced 5G solutions. However, a North Carolina competitor has filed a patent infringement lawsuit against the company, hindering its 5G service rollout. GOGO denies violating the company’s patents.

In addition, the stock price received an upward push by the news that it is about to join the S&P SmallCap 600 effective prior to the opening of trading on Friday, April 8, replacing SPX FLOW Inc. (FLOW).

Click here to checkout our 5G Industry Report for 2022

Here is what could shape GOGO’s performance in the near term:

Impressive Growth in the Last Reported Quarter

For its fiscal fourth quarter, ended Dec. 31, 2021, GOGO’s total revenues increased 18.9% year-over-year to $92.30 million. Its operating income stood at $32.33 million, up 106% from its year-ago value. Also, its net income came in at $218.71 million, representing a substantial increase from its prior-year quarter value of $845,000, while its EPS came in at $1.60, compared to its $0.01 year-ago value.

Stretched Valuation

In terms of forward Price/Sales, GOGO is currently trading at 5.72x, which is 272.6% higher than the 1.54 industry average. Also, its 7.65 forward EV/Sales ratio is 251.7% higher than the 2.17 industry average. And its 19.13x forward EV/EBITDA is 104.3% higher than the 9.36x industry average.

Consensus Rating and Price Target Indicate Downside

Among the three Wall Street analysts that rated GOGO, one rated it a Buy, and two rated it a Hold. The $19.67 12-month median price target indicates a marginal downside in the stock. The price targets range from a low of $18.00 to a high of $21.00.

POWR Ratings Reflect Uncertainty

GOGO has an overall C rating, which translates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a grade of D for Value, which is consistent with its lofty valuation.

GOGO has a C grade for Stability, in sync with its 1.05 beta.

Among the 74 stocks in the Air/Defense Services industry, GOGO is ranked #26.

Beyond what I have stated above, you can also view GOGO’s grades for Quality, Growth, Momentum, and Sentiment here.

View the top-rated stocks in the Air/Defense Services industry here.

Bottom Line

GOGO is expected to launch its 5G service in the second half of 2022, creating a significant buzz around the stock. The company has delivered solid growth in its most recent quarter. However, Street expects its EPS to decline 54.2% year-over-year in the current year. Furthermore, considering its lofty valuation, I think it could be best to wait for further development in its 5G plan before investing in the stock.

How Does Gogo Inc. (GOGO) Stack Up Against its Peers?

While GOGO has an overall POWR Rating of C, one might want to consider taking a look at its industry peers, Moog Inc. (MOG.A - Get Rating) and Ducommun Incorporated (DCO - Get Rating), which have an A (Strong Buy) rating.

GOGO shares were unchanged in premarket trading Monday. Year-to-date, GOGO has gained 47.60%, versus a -5.47% rise in the benchmark S&P 500 index during the same period.

About the Author: Subhasree Kar

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...

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