Globalstar, Inc.'s (NASDAQ:GSAT) 39% Price Boost Is Out Of Tune With Revenues

Globalstar, Inc. (NASDAQ:GSAT) shares have continued their recent momentum with a 39% gain in the last month alone. The annual gain comes to 111% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, given around half the companies in the United States' Telecom industry have price-to-sales ratios (or "P/S") below 1.2x, you may consider Globalstar as a stock to avoid entirely with its 31.5x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

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Check out our latest analysis for Globalstar

How Has Globalstar Performed Recently?

With revenue growth that's inferior to most other companies of late, Globalstar has been relatively sluggish. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Globalstar.

Do Revenue Forecasts Match The High P/S Ratio?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Globalstar's to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 8.5% last year. This was backed up an excellent period prior to see revenue up by 85% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 13% as estimated by the dual analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 54%, which is noticeably more attractive.

With this in consideration, we believe it doesn't make sense that Globalstar's P/S is outpacing its industry peers. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What Does Globalstar's P/S Mean For Investors?

The strong share price surge has lead to Globalstar's P/S soaring as well. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've concluded that Globalstar currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. At these price levels, investors should remain cautious, particularly if things don't improve.

It is also worth noting that we have found 2 warning signs for Globalstar that you need to take into consideration.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.