Unveiling Iridium Communications (IRDM)'s Value: Is It Really Priced Right? A Comprehensive Guide
With a daily gain of 4.33% and a 3-month loss of -18.24%, Iridium Communications Inc (NASDAQ:IRDM) is experiencing significant volatility. The company reported a Loss Per Share of 0.15, raising questions about its current valuation. Is the stock modestly undervalued? This analysis aims to answer this question by providing a detailed evaluation of the company's financial performance and intrinsic value.
Company Overview
Iridium Communications Inc offers voice and data communications services and products to businesses, U.S. and international government agencies, and other customers on a global basis. The company is a provider of mobile voice and data communications services through a constellation of low earth-orbiting satellites. The company's solutions are ideally suited for industries such as maritime, aviation, government/military, emergency/humanitarian services, mining, forestry, oil and gas, heavy equipment, transportation, and utilities. Iridium also provides service to subscribers from the U.S. Department of Defense, as well as other civil and government agencies around the world.
Understanding the GF Value
The GF Value is a proprietary measure that gives an overview of a stock's fair value. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on the company's past performance and growth, and future business performance estimates. The GF Value Line on our summary page provides an idea of the fair value that the stock should be traded at.
The stock of Iridium Communications (NASDAQ:IRDM) appears to be modestly undervalued, according to the GF Value. The stock's fair value is estimated based on historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. On the other hand, if the share price is significantly below the GF Value calculation, the stock may be undervalued and have higher future returns. At its current price of $49.61 per share, Iridium Communications stock appears to be modestly undervalued.
Because Iridium Communications is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. It's crucial to review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Iridium Communications has a cash-to-debt ratio of 0.07, which ranks worse than 80.05% of 391 companies in the Telecommunication Services industry. Based on this, GuruFocus ranks Iridium Communications's financial strength as 4 out of 10, suggesting a poor balance sheet.
Profitability and Growth
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Iridium Communications has been profitable 6 years over the past 10 years. During the past 12 months, the company had revenues of $776.30 Mil and Loss Per Share of $0.15. Its operating margin of 5.65% worse than 62.69% of 386 companies in the Telecommunication Services industry. Overall, GuruFocus ranks Iridium Communications's profitability as fair.
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Iridium Communications is 7.4%, which ranks better than 66.49% of 379 companies in the Telecommunication Services industry. The 3-year average EBITDA growth rate is 23%, which ranks better than 82.09% of 335 companies in the Telecommunication Services industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Iridium Communications's return on invested capital is 0.9, and its cost of capital is 8.55.
Conclusion
In summary, the stock of Iridium Communications (NASDAQ:IRDM) appears to be modestly undervalued. The company's financial condition is poor, and its profitability is fair. However, its growth ranks better than 82.09% of 335 companies in the Telecommunication Services industry. To learn more about Iridium Communications stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
