Apple Partner Globalstar Just Set a New Record, but Did You Even Notice?

On Feb. 27, satellite communications company Globalstar (NASDAQ: GSAT) reported the end of its best revenue year ever. If you didn't notice, though, don't feel bad. It actually looks like almost no investors noticed.

Two weeks after announcing its results, Globalstar's stock is...down about 2% from its pre-earnings price!

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Globalstar's gigantic 2024

How good was Globalstar's news last month? That really depends on which numbers you focus on.

For its part, management would prefer you focus on revenue. The 2024 revenue figure set a company record, rising 12% year over year to $250.3 million; Globalstar's fourth-quarter performance, in particular, was even stronger, beating analyst forecasts and rising 18% year over year to $61.2 million. Globalstar also promised to keep the good news coming, telling investors to expect 2025 revenue of between $260 million and $285 million, up as much as 13% from 2024 and once again well ahead of analyst forecasts.

The company did lose money for the quarter, unfortunately. But as management pointed out, this was primarily due to noncash losses recorded "on extinguishment of debt associated with the paydown of the 2023 13% Notes." So, even that news wasn't so bad. The net loss for the quarter was $50.2 million ($0.42 per share) and, for the year, $63.2 million ($0.59 per share).

On the plus side, management noted significant increases in free cash flow (FCF), which is what's left of cash flow after capital expenditures. Globalstar inexplicably did not highlight this in its earnings release. However, according to data from S&P Global Market Intelligence, the company generated $185 million in positive cash profits in 2024, a much improved result from the $100 million it burned in 2023. In fact, according to S&P Global data, 2024 FCF was the most Globalstar has ever generated in a single year -- by a factor of two.

Globalstar's free-cash-flow problem

Of course, after seeing such wonderful numbers, investors' main question is whether Globalstar can continue generating cash at such impressive levels. And the answer, I suspect, is no.

Discussing this question with analysts on its post-earnings conference call last month, Globalstar Chief Financial Officer Rebecca Clary declined to give any specific projections on future free cash flow, instead alluding to the "nuances" of how the company incurs capital spending obligations for building and launching its satellites and splits them 50-50 with its "wholesale" customer.

("Wholesale," by the way, appears to be the appellation Globalstar prefers to use, instead of saying "Apple" outright on its calls. But Apple (NASDAQ: AAPL) is believed to be the customer gobbling up 85% of Globalstar's network capacity these days).

In the end, said Clary, Globalstar's free-cash-flow numbers are going to depend a lot on the "timing" of satellite launches and Apple payments and on the amount of its costs reimbursed by Apple. Which is to say that, ultimately, Clary didn't answer the question.

That's not dissuading analysts from guessing, however. On S&P Global, analysts forecast that the company's positive free cash flow in 2024 will go negative again in 2025. By 2026, the number will be positive, but only $69 million, or barely a third of its blockbuster 2024 result.

Is Globalstar stock a buy?

As a result, I'm afraid investors probably can't rely on FCF as a solid metric for valuing Globalstar stock. You can't simply say, "$2.7 billion market, $185 million FCF. This stock has a price-to-free-cash-flow ratio of less than 15 and is, therefore, cheap."

Rather, a more conservative approach would be to say, "$2.7 billion market cap, $69 million FCF in a couple of years. That values Globalstar at 39 times FCF, which is an awful lot to pay for a stock when its FCF is as lumpy as this one seems to be and when it's probably going to decline."

At least, that's my read on Globalstar stock today: Great quarter, but it's not going to last -- Globalstar stock is a sell, not a buy.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.