Globalstar, Inc. (NYSE:GSAT) and CalAmp Corp. (NASDAQ:CAMP) are the two most active stocks in the Wireless Communications industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.
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, CAMP is expected to grow at a 20.00% annual rate. All else equal, CAMP’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use Return on Investment (ROI) as measures of profitability and return. GSAT’s ROI is -7.70% while CAMP has a ROI of 0.50%. The interpretation is that CAMP’s business generates a higher return on investment than GSAT’s.
The value of a stock is simply the present value of its future free cash flows. GSAT’s free cash flow (“FCF”) per share for the trailing twelve months was +0.00. Comparatively, CAMP’s free cash flow per share was +0.25. On a percent-of-sales basis, GSAT’s free cash flow was 0% while CAMP 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 provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. GSAT has a current ratio of 0.20 compared to 2.60 for CAMP. This means that CAMP can more easily cover its most immediate liabilities over the next twelve months. GSAT’s debt-to-equity ratio is 6.22 versus a D/E of 0.00 for CAMP. GSAT is therefore the more solvent of the two companies, and has lower financial risk.
GSAT trades at a forward P/B of 24.88, and a P/S of 19.57, compared to a forward P/E of 13.64, a P/B of 3.71, and a P/S of 1.88 for CAMP. 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
A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. GSAT is currently priced at a -20.4% to its one-year price target of $2.50. Comparatively, CAMP is -15.31% relative to its price target of $21.75. This suggests that GSAT 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 2.30 for CAMP, which implies that analysts are more bullish on the outlook for CAMP.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. GSAT has a beta of 2.81 and CAMP’s beta is 1.57. CAMP’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. GSAT has a short ratio of 23.60 compared to a short interest of 7.65 for CAMP. This implies that the market is currently less bearish on the outlook for CAMP.
CalAmp Corp. (NASDAQ:CAMP) beats Globalstar, Inc. (NYSE:GSAT) on a total of 10 of the 13 factors compared between the two stocks. CAMP , is more profitable, generates a higher return on investment, has higher cash flow per share, higher liquidity and has lower financial risk. In terms of valuation, CAMP is the cheaper of the two stocks on book value and sales basis, Finally, CAMP has better sentiment signals based on short interest.