Unraveling Gogo Inc (GOGO)'s Potential for Underperformance: A Deep Dive into Key Metrics
Long-established in the Telecommunication Services industry, Gogo Inc (NASDAQ:GOGO) has enjoyed a stellar reputation. It has recently witnessed a surge of 13.97%, juxtaposed with a three-month change of -19.83%. However, fresh insights from the GuruFocus Score Rating hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of Gogo Inc.
Understanding the GF Score
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
1. Financial strength rank: 3/10
2. Profitability rank: 4/10
3. Growth rank: 3/10
4. GF Value rank: 7/10
5. Momentum rank: 7/10
Based on the above method, GuruFocus assigned Gogo Inc the GF Score of 67 out of 100, which signals poor future outperformance potential.
Snapshot of Gogo Inc's Business
Gogo Inc is a US-based in-flight connectivity system and service provider. The company, through its subsidiaries, offers aero communications, in-flight broadband, and wireless in-cabin digital entertainment solutions for the aviation industry. Its business segments include Commercial Aviation North America, Commercial Aviation Rest of World, and Business Aviation. The company offers connectivity and entertainment services to commercial airlines flying routes within North America, satellite-based connectivity and entertainment services to foreign-based commercial airlines and North American-based commercial airlines flying outside North America, and a variety of in-flight Internet connectivity and other voice and data communications products and services.
Financial Strength Breakdown
Gogo Inc's financial strength indicators present some concerning insights about the company's balance sheet health. Gogo Inc has an interest coverage ratio of 2.61, which positions it worse than 69.44% of 301 companies in the Telecommunication Services industry. This ratio highlights potential challenges the company might face when handling its interest expenses on outstanding debt. It's worth noting that the esteemed investor Benjamin Graham typically favored companies with an interest coverage ratio of at least five.
The company's Altman Z-Score is just 0.48, which is below the distress zone of 1.81. This suggests that the company may face financial distress over the next few years. Additionally, the company's low cash-to-debt ratio at 0.14 indicates a struggle in handling existing debt levels. The company's debt-to-equity ratio is 74.1, which is worse than 98.85% of 347 companies in the Telecommunication Services industry. A high debt-to-equity ratio suggests over-reliance on borrowing and vulnerability to market fluctuations.
Profitability Breakdown
Gogo Inc's low Profitability rank can also raise warning signals. Additionally, Gogo Inc's Gross Margin has also declined over the past five years, as evidenced by the data: 2018: 68.10; 2019: 69.61; 2020: 68.72; 2021: 69.56; 2022: 66.37. This trend underscores the company's struggles to convert its revenue into profits.
Growth Prospects
A lack of significant growth is another area where Gogo Inc seems to falter, as evidenced by the company's low Growth rank. The company's revenue has declined by -7.6 per year over the past three years, which underperforms worse than 82.37% of 380 companies in the Telecommunication Services industry. Stagnating revenues may pose concerns in a fast-evolving market. Lastly, Gogo Inc predictability rank is just one star out of five, adding to investor uncertainty regarding revenue and earnings consistency.
Conclusion
Given Gogo Inc's financial strength, profitability, and growth metrics, the GuruFocus Score Rating highlights the firm's unparalleled position for potential underperformance. While the company has a rich history in the Telecommunication Services industry, its current financial indicators suggest that it may struggle to maintain its historical performance. Investors should consider these factors when making investment decisions.
GuruFocus Premium members can find more companies with strong GF Scores using the following screener link: GF Score Screen
This article first appeared on GuruFocus.
