GSAT - Globalstar: Ex-Qualcomm Additions Spur Shares Into Growth Mode (Technical Analysis)

2023-08-30 09:00:08 ET

Summary

• Former Qualcomm CEO and another former Qualcomm heavyweight join Globalstar.
• GSAT's technical chart shows a bullish breakaway gap, indicating potential upside momentum.
• Positive operating profit and strong top-line performance suggest aggressive growth for Globalstar.

Globalstar Overview

Globalstar, Inc. (GSAT) looks like it is going to continue its bullish move to the upside after the recent announcement that the former CEO of Qualcomm is going to take up the mantle at the company. Paul E. Jacobs will not only act as the immediate CEO of Globalstar, but will also join the company's board of directors. Matt Grob (another former Qualcomm heavyweight) has also joined Qualcomm and will act as chief technology officer with immediate effect.

These developments follow on from the strategic partnership agreement Globalstar inked with Qualcomm in March of this year where 'Band 53 expansion' was the name of the game with respect to growing the range of aligned infrastructure as well as expanding device adoption.

In fact, as we see from Globalstar's technical daily chart below, speculators have a low-risk entry into Globalstar at present given how the stock has gapped up to the upside (in what looks like a breakaway gap) as well as the fact that overhead resistance ($1.25+ per share) of June and August of this year has now been taken out. The tell-tell signs that we have a bullish breakaway gap in play here are that shares had been consolidating for quite some time, and buying volume on the breakout was extremely aggressive. Therefore, our low-risk premise stems from the fact that the upside gap should now act as significant downside support, meaning it has no business getting filled going forward. Remember, breakaway gaps usually make themselves known at the beginning of major market moves, which is why we would liquidate any long exposure if the $1.25 level was not to hold over the near term.

Furthermore, GSAT's daily technicals fall in line with what we are seeing on the stock's intermediate 5-year chart. What we see below is a rectangle formation (consolidation) which merely represents a pause in the underlying long-term bullish trend. Further bullish confirmation would be for GSAT's 10-week moving average ($1.12) to cross over its corresponding 40-week average ($1.19). Therefore, if indeed this can take place shortly, we would be looking for at least a test of the rectangle's upper trendline (well over $2 a share) in GSAT's latest bullish move.

Why are the above charts an important part of how we trade the financial markets, especially for stocks such as GSAT? Well, just look at the sizable valuation the stock continues to trade for and the clear lack of profitability that accompanies this play. The company continues to report negative earnings over a trailing twelve-month period (-$213 million) and the stock's forward sales multiple of 10.81 remains light years ahead of what the sector is trading at (Forward p/s of 1.20).

Aggressive Growth Coming

Suffice it to say, to put capital to work, we need to see significant validation in a stock such as GSAT, but that validation finally appears to making itself known. In the first two quarters of this year, operating profit finally came in positive, with EBIT of $7.2 million in the first quarter and EBIT of $2.6 million in Q2. These positive EBIT numbers are due to the strong top-line performances we have seen this year with 80% year-on-year sales growth in Q1 followed by 50% top-line growth in Q2 this year. Management now believes that the company will do at least $200 million ($220 million expected) in sales this year and incidentally, net profit finally broke even in Q2 as forex gains helped offset the $5+ million of interest expense in the quarter.

Moreover, it is EBIT and probably more specifically EBITDA growth that will attract investors to GSAT especially if growth continues to accelerate. The company's runway for growth remains extensive to say the least, with the company's 2-way device offering set to significantly improve how much subscribers pay over a predetermined period. Furthermore, it is widely acknowledged that the Band 53 opportunity with respect to infrastructure and device compatibility remains very early in its growth curve. In fact, when one acutely sees the opportunity GSAT has in the IoT , legacy, wholesale as well as terrestrial markets, growth is a prerequisite at this stage. It just is a matter of how fast the company can grow from its current price point.

Conclusion

Shares of GSAT continue to rally to the upside on the announcement that former Qualcomm heavyweights have joined the company with immediate effect. Our one disclaimer is that sales and associated EBITDA growth need to remain aggressive to justify the company's lofty valuation. We look forward to continued coverage.

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