From $27 to $20, and -- almost -- back again, the last couple of months have been a rocky ride for investors in satellite communications voice-and-data stock Iridium Communications (NASDAQ:IRDM).

In September Iridium won a massive seven-year, $738.5 million Pentagon contract to provide satcom services to the U.S. military -- which did exactly nothing to help its tumbling stock price. What did ultimately help was when analysts at Sidoti & Co. upgraded Iridium stock to buy a month later on hopes that free cash flow at the company will continue to improve as the company's "Aireon" space-based air traffic monitoring service grows, and as new Certus Broadband and Narrowband services roll out to the market.

So how is that working out?

Flock of satellites orbiting Earth

Image source: Getty Images.

Iridium reports

You can check out Iridium's full earnings call transcript right here if you like, but here's the news in a nutshell.

Iridium grew its number of "total billable subscribers" by 16% year over year to 1.27 million. Curiously, though, revenue didn't grow in tandem with subscribers. Iridium grew its total revenue 6% in comparison to Q3 2018, hitting $144.8 million. Services revenue grew 10%, while revenue from equipment sales declined 6%. 

Moreover, Iridium made no profits at all on this revenue. Although operating profit climbed 33% to $8 million, interest payments on the company's $2 billion debt load ate up all that and more. On the bottom line, Iridium's net loss swelled by 8% to $0.14 per share -- despite a large increase in the share count, which spread the losses out over more shares outstanding.

On the plus side, and as Sidoti's upgrade alluded to, the free cash flow situation at Iridium did improve. Over the course of the first nine months of 2018 Iridium burned through nearly $69 million in negative free cash flow. Through the first nine months of 2019, in contrast, Iridium has generated nearly $40 million in positive free cash flow -- largely a result of significantly reduced capital spending on its satellite fleet.

As for the hopes of Aireon and Certus improving the business, Aireon is a live service now, and is contributing "about $1.1 million a month currently," according to Iridium CFO Thomas J. Fitzpatrick. And Certus was mentioned as helping to grow "commercial voice and data average revenue per user" -- but only by $1 a month, from $47 to $48. Meanwhile, Iridium noted that while commercial internet of things (IoT) customers grew during the quarter, "the higher volume of new personal communications subscribers [ended up] utilizing lower ARPU plans," lowering "commercial IoT data ARPU [by] 11%." 

Valuing Iridium

So what does all this mean for investors?

The trends at Iridium continue to edge upwards. With Certus growing and Aireon, too, management even raised its guidance for services revenue for this year to about $447.5 million, representing 10% year over year growth. Assuming that services revenue continues to account for about 80% of Iridium's total revenue through Q4 (as it was in Q3), that suggests that total revenue for the year could be in the neighborhood of $560 million -- roughly equal to Wall Street's prediction of $559 million. 

More importantly, Iridium is also predicting that it will end this year firmly free cash flow positive, generating a cash profit of about $167 million -- which would be a big improvement not only over last year's performance, but over what Iridium has accomplished already so far this year.

Regardless, relative to the stock's $5 billion enterprise value, I still see Iridium stock valued at roughly 30 times current-year free cash flow. Given the relatively modest rates of growth being projected in sales revenue -- 10% or thereabouts -- that still seems too expensive to me to recommend buying Iridium stock today.