Shares of Louisiana-based satellite communications company Globalstar Inc. (AMEX:GSAT, Financial) are up more than 10% following the announcement of the company's most recent quarterly results.
This happened despite the company reporting a significant decline in the top line on a year-over-year basis and a net loss of $0.10 per share. The company also failed to issue guidance for the fourth quarter and full fiscal year 2020.
As such, some would have been surprised to see the stock price surge given the third quarter performance. On a more positive note, though, Globalstar matched expectations on earnings, which were unchanged from the same period last year.
Going into the final quarter of the year, analysts have predicted a slight decline in the top line for the full-year results while the bottom line is expected to break even. If Globalstar can match analyst expectations again, then it would be closer to turning a corner that would open a path back to profitability.
Catalysts that could help the company turn a corner
The company will rely on some key growth catalysts to meet these expectations. It is looking to capitalize on the rapidly growing Internet of Things (IoT) market. The company said in a statement that it sees opportunities in the satellite-borne IoT connectivity market. The IoT connectivity market is projected to grow at a CAGR of 18.7% from $3.8 billion in 2019 to $8.9 billion in 2024, according to a research report by Markets and Markets.
Globalstar also looks to capitalize on the increasing use of tracking devices by consumers and enterprises. These devices create opportunities in the transportation and cargo delivery market.
Businesses are increasingly adopting global positioning and tracking systems to monitor goods in transit and choose the quickest routes. It is also becoming a necessity for personal vehicles to have tracking devices. As such, Globalstar appears to be operating in a market that will only become more important going into the future.
The biggest question is whether the company is well-positioned to take up these opportunities. From a financial perspective, Globalstar's balance sheet is far from flexible. The company's total cash of just $19.38 million against total debt of nearly $390 million leaves little room for flexibility.
Globalstar's market cap too big for a penny stock
Globalstar trades at a price-book value of about 1.17, which looking at exclusively is compelling. However, when we factor in other factors like the streak of losses and a top line that is expected to decline this year, then it becomes clear why investors are not willing to add much premium to the company's liquidation value.
The company's current price per share of just $0.33 means that it falls under the category of penny stocks, which come accompanied by unique risk parameters. However, Globalstar's market capitalization of over $550 million means that it is not an ordinary penny stock. Many penny stocks tend to have market valuations of less than $10 million. As such, Globalstar is probably one of the top penny stocksthat investors can consider for their portfolio based on its total market value.
Nonetheless, with an average three-month trading volume of about 1.65 million from a total float of over 600 million shares, an equivalent of 0.27%, the company still falls under the category of thinly traded stocks. As such, investors should still take caution.
Globalstar has had some notable shareholders in the past with Joel Greenblatt (Trades, Portfolio), David Einhorn (Trades, Portfolio) and George Soros among those who held the stock at some point over the last four years. Despite the company's poor performance in recent years, it could still retain some of the compelling attributes that attracted these guru investors.
Conclusion
In summary, Globalstar is projected to break-even this year, which could be an important turning point. The company also operates in an industry that could witness significant growth in the next few years.
However, its balance sheet does not appear flexible enough for it to capitalize on huge opportunities that might come its way. The financial position is not good enough. As such, while the opportunity to turn a corner appears to be on the horizon, it remains to be seen whether Globalstar will take it.
Disclosure: No position in the stocks mentioned.
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