Globalstar, Inc. (GSAT) provides mobile satellite services worldwide. Its stock has surged 357.8% so far this year to close yesterday’s trading session at $1.41. The stock hit its 52-week high of $2.98 on February 10, following the company’s announcement of an alliance with QUALCOMM Incorporated (QCOM). However, the stock has lost 52.7% since.

GSAT has a long history of share price weakness. The stock has  gained just 46.4% over the past three years but has declined 1.4% over the past five years.

Moreover, even if the demand for satellite services increases in the coming months thanks to increasing Internet of Things (IoT) usage, it’s uncertain if the company will be able to capitalize on this trend because of its weak financials.

Here’s what I think could shape GSAT’s performance in the near term:

Recent Deals May Not Be Enough to Drive Long-term Growth

The company’s wholly owned subsidiary, SPOT, LLC, partnered with Jeep Jamboree USA as an official sponsor on February 24. . Prior to that, on February 17, GSAT announced a strategic alliance with XCOM Labs. The  company also announced in February  that QCOM has included GSAT’s Band n53 in its new 5G X65 modem.

The company’s business partner, Nokia Corporation (NOK), also entered  an agreement with Tideworks Technology to deploy GSAT’s Band 53 spectrum at the Port of Seattle, Terminal 5. But even though these deals may have driven the recent price surge for GSAT, they may not help the stock sustain its momentum in the long run given its weak financials. Analysts expect GSAT’s revenue to decline 1.5% in fiscal 2021.

Disappointing Financials

The company’s revenue from subscriber equipment sales declined nearly 19% year-over-year to $4.39 million for the fourth quarter, ended December 31, 2020. GSAT’s loss from operations was  $15.06 million for the quarter versus  $14.64 million for the third quarter, ended September 30, 2020. The company’s net loss for the fourth quarter was  $21.73 million.

Further,  GSAT’s average subscribers in its Duplex segment declined 10.9% year-over-year to 48,420 for the fourth quarter (ended December 31, 2020). Its average subscribers from its SPOT segment declined 5.3% year-over-year to 261,008. The average revenue per unit (ARPU) for these segments also decreased 8.2% and 2.5%, respectively, for the quarter.

Expensive Valuation

In terms of forward enterprise value/sales, GSAT’s 24.86x is 824.2% higher than the industry average  2.69x. In terms of forward price/sales, the stock’s 20.16x is higher than the industry average  1.97x. The stock’s forward enterprise value/EBITDA of 68.73x is also higher than the industry average  10.29x.

Wall Street analysts expect the stock to hit $0.55 in the near term, which represents  a potential decline of 67.5%.

POWR Ratings Reflect GSAT’s Bleak Outlook

GSAT has an overall rating of F, which equates to Strong 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 an F grade for Value also. This is consistent with the stock’s higher-than-industry valuation ratios.

The stock also has a D grade for Quality. This is consistent  with the stock’s negative values for trailing-12-month return on common equity and trailing-12-month return on total assets.

In addition to these grades, we have  graded GSAT for Growth, Momentum, Stability and Sentiment. Get all GSAT’s ratings here.

The stock is ranked #25 of 26 stocks in the D-rated Telecom – Domestic industry.

Better than GSAT: Click here to access 2 top-rated stocks in the same industry.

Bottom Line

GSAT soared to all-time highs in February 2021 thanks to several strategic partnerships. However, this surge in its share price is unlikely to be sustained in the near term given the company’s weak financials. Moreover, the stock is trading at a premium valuation absent sufficient  fundamental strength. So, we think it wise to avoid the stock now.

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GSAT shares were trading at $1.41 per share on Friday morning, down $0.00 (+0.01%). Year-to-date, GSAT has gained 316.42%, versus a 1.66% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

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. More...

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