Stocks to sell

A hot rumor that could have led to significant profits for satellite operator Globalstar (NYSE:GSAT) stock, which focuses on providing mobile satellite services, appears to have fizzled out at least for the next year.

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Meanwhile, the company is facing a huge amount of competition and GSAT stock, despite its recent plunge, is trading at a gigantic valuation.

In light of these points, the company’s shares don’t look very appealing right now.

A Rumor That Hasn’t Panned Out

During the summer, there were rumors that Apple (NASDAQ:AAPL) would partner with Globalstar to allow iPhone users to contact first responders even if they are in totally isolated areas. That feat would be accomplished by connecting iPhones to Globalstar’s satellites.

Additionally, there were previously reports that Apple CEO Tim Cook had been interested in utilizing satellite connectivity to direct data to iPhones, bypassing mobile carriers.

There was some other evidence supporting the notion that the iPhone maker could partner with Globalstar. Specifically, Qualcomm (NASDAQ:QCOM), a chip maker that itself works with Apple, “added support for Globalstar’s spectrum into its 5G modem,” InvestorPlace contributor Ian Bezek reported in his Oct. 12 column.

Additionally, information in an FCC filing reportedly suggested that Globalstar could be working with Apple.

In August, TF International Securities analyst Ming-Chi Kuo wrote that “the (iPhone) will probably work with spectrum owned by Globalstar.”

But the rumor is unlikely to come true, at least for now. In August, Bloomberg quoted an unnamed source as saying that, “although the next iPhone could have the hardware needed for satellite communications, the features are unlikely to be ready before next year,” The source added that the “features could also ….be scrapped.”

And Apple did not announce any satellite connectivity features during its public events in September and October. Since Apple usually announces its new features in the fall, no announcement on the matter is likely to be made until almost a year from now.

Competition in the Satellite Space and Financials

In addition to Globalstar, there are at least three other top satellite telecom companies. They are the U.K.’s Inmarsat, the United Arab Emirates’ Thuraya, and another American company, Iridium (NASDAQ:IRDM).

Not only does this significant competition undermine Globalstar’s top and bottom lines, but Apple could, if it decides to launch iPhones with satellite connectivity, choose to partner with one of Globalstar’s rivals.

What’s more, Apple could decide to “think outside the box” and partner with a newer, flashier company, like Elon Musk’s Starlink or Jeff Bezos’ Blue Origin. Such a move would definitely garner much more publicity for Apple than a tie-up with Globalstar.

In Globalstar’s financial results, there are certainly signs that it’s not thriving amid all the competition. For one thing, its top line has not exactly been on fire. Its revenues in 2018, 2019 and 2020, respectively, were $130.1 million, $131.7 million and $128.5 million.

Nor has the company’s profitability been impressive; its posted a loss in the last three years, losing $68 million in 2018, $63.7 million in 2019 and $60.9 million last year.

Valuation and the Bottom Line on GSAT Stock

The company’s shares are trading at a forward price-sales ratio, based on analysts’ average 2022 revenue estimate, of 22.5. That’s an extremely high ratio for an unprofitable, well-established company (it was founded in 1999) that’s facing a significant amount of tough competition.

Those who take a bullish position in GSAT stock now are betting that the company will partner with Apple. But such an alliance will likely not be disclosed for close to 11 months at least. And, alternatively, the partnership may not be disclosed for two or three years. Or it may never materialize.

In the meantime, most of the stock’s owners are likely to become captivated by other names with better near-term and medium-term prospects and sell Globalstar’s shares, causing their value to decline.

All in all, I think that there are a plethora of stocks with more attractive valuations and better prospects than Globalstar. therefore, I advise investors to sell GSAT stock at this point.

On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Larry Ramer has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Plug Power. You can reach him on StockTwits at @larryramer.