Globalstar Is Coming Off a Speculative Peak With No Profits In Sight

Globalstar (NYSEAMERICAN:GSAT) is a highly speculative global satellite company that is coming off peak speculation. GSAT stock peaked at $2.69 on hopes that Apple (NASDAQ:AAPL) was going to sign up with the company. When that didn’t happen during a recent Sept. 14 conference, the stock started falling. Unfortunately, it probably has much lower to go.

So far this year, GSAT stock has had a pretty good ride. It ended last year at 34 cents per share. As of Sept. 29, it closed at $1.61. That gives it an astounding 373.5% performance year-to-date (YTD).

Moreover, from its recent trough of $1.23 on Aug. 20, GSAT stock is now up over 30% in a little over one month. This is even after dropping 40% from $2.69 at its recent peak from the conference Apple speculation.

I suspect that the stock will continue floating down to where it was before all the Apple deal hype, or close to $1.23.

Where Things Stand at Globalstar

One reason I believe this will happen is that Globalstar reported flat sales for Q2 ending June 30 on Aug. 5, as well as continuing losses.

However, investors’ interest in GSAT stock peaked after an article in Bloomberg about Apple’s potential use of satellite technology came out on Aug. 31. The article, “Apple Plans to Add Satellite Features to iPhones for Emergencies,” quoted an analyst saying that Globalstar would be the satellite provider.

So far there has not been any announcement about this, either from Apple or Globalstar. There was speculation that a deal would be announced during an Apple conference on Sept. 14. But when there was nothing, the stock started to crater.

That leaves just the company’s financial outlook in which the investors could put their hopes. And that is not much. For example, sales were $30.27 million vs. $30.36 million last year. This is zero percent growth.

However, its core service business fell from $27.09 million last year to $25.61 million this past quarter. That means its core satellite business fell by 5.4% in the past year. That’s not good.

It coincides with the fact that the number of its average subscribers fell from 757.2 thousand to 745.6 thousand. In other words, its core business is deteriorating, not growing. On top of that, net income was another loss of $21.44 million vs. negative $24.70 million last year.

Positive Free Cash Flow

However, one bit of good news is that its free cash flow (FCF) was has been positive. That means that it is not burning through its cash.

For example, for the 6 months ending June 30, the company reported cash flow from operations was positive $55.9 million. After capex spending of $2.29 million and a network upgrade of $8.83 million, its FCF was $44.8 million.

However, Globalstar spent more than this on $89.16 million in debt payments on its first-lien facility. If it wasn’t for the company’s cash raise of $43.68 million, it couldn’t have afforded this debt principal payment.

This is important since the company has just $15.7 million in cash on its balance sheet. However, recently on Aug. 30, Globalstar received $37.5 million in advance payment on a contract.

Where This Leaves GSAT Stock

Unless the company gets some kind of unexpected good news like an Apple deal, GSAT stock is likely to continue treading water. That is unless the company can get profitable, it is very difficult to value the company. It also doesn’t help that the company’s underlying subscriber count and subscriber revenue is declining.

Some analysts think the stock is worth more than today. Seeking Alpha reports that 2 analysts have an average price target of $1.90. TipRanks says that 1 analyst has a $3.25 price target. Yahoo Finance, on the other hand, reports that 3 analysts have an average price of $2.35.

Despite these analyst predictions, I suggest that the stock is not worth investing in at the present time. It seems to be too speculative. Until the company produces real net income profits and its subscriber base starts to grow again it might be wise to wait.

On the date of publication, Mark R. Hake did not hold a position in any security mentioned in the article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.