Globalstar, Inc. (NYSE:GSAT) shares are down more than -27.22% this year and recently decreased -2.54% or -$0.03 to settle at $1.15. NII Holdings, Inc. (NASDAQ:NIHD), on the other hand, is down -88.37% year to date as of 12/15/2017. It currently trades at $0.25 and has returned -0.20% during the past week.
Globalstar, Inc. (NYSE:GSAT) and NII Holdings, Inc. (NASDAQ:NIHD) are the two most active stocks in the Wireless Communications industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect GSAT to grow earnings at a 15.00% annual rate over the next 5 years. Comparatively, NIHD is expected to grow at a 20.00% annual rate. All else equal, NIHD’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use Return on Investment (ROI) to measure this. GSAT’s ROI is -7.70% while NIHD has a ROI of -165.30%. The interpretation is that GSAT’s business generates a higher return on investment than NIHD’s.
Earnings don’t always accurately reflect the amount of cash that a company brings in. GSAT’s free cash flow (“FCF”) per share for the trailing twelve months was +0.01. Comparatively, NIHD’s free cash flow per share was -0.31. On a percent-of-sales basis, GSAT’s free cash flow was 0.01% while NIHD converted -0% of its revenues into cash flow. This means that, for a given level of sales, GSAT is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. GSAT has a current ratio of 0.30 compared to 0.80 for NIHD. This means that NIHD can more easily cover its most immediate liabilities over the next twelve months. GSAT’s debt-to-equity ratio is 2.85 versus a D/E of 563.58 for NIHD. NIHD is therefore the more solvent of the two companies, and has lower financial risk.
GSAT trades at a P/B of 6.76, and a P/S of 13.81, compared to a P/B of 25.00, and a P/S of 0.03 for NIHD. GSAT is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S ratio. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. GSAT is currently priced at a -54% to its one-year price target of 2.50. Comparatively, NIHD is -75% relative to its price target of 1.00. This suggests that NIHD is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.00 for GSAT and 4.00 for NIHD, which implies that analysts are more bullish on the outlook for NIHD.
Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. GSAT has a short ratio of 20.10 compared to a short interest of 3.65 for NIHD. This implies that the market is currently less bearish on the outlook for NIHD.
NII Holdings, Inc. (NASDAQ:NIHD) beats Globalstar, Inc. (NYSE:GSAT) on a total of 6 of the 14 factors compared between the two stocks. NIHD generates a higher return on investment and higher liquidity. NIHD is more undervalued relative to its price target. Finally, NIHD has better sentiment signals based on short interest.