Please ensure Javascript is enabled for purposes of website accessibility

Why Globalstar Stock Bounced Today

By Rich Smith – Sep 15, 2021 at 2:11PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

And why it won't last.

What happened

Shares of satellite communications company Globalstar (GSAT 0.53%) crashed 21% yesterday after it became apparent that Apple's (AAPL 4.86%) new iPhone 13 will in fact not enable users to call each other via satellite.  

That means Apple won't be paying Globalstar for satellite bandwidth on these not-sat phones -- which explains why investors dropped Globalstar stock like a radioactive hunk of satellite junk yesterday. But what explains the fact that Globalstar stock is back up 4.4% today (as of 1:30 p.m. EDT)?

Rising stock chart with a cat head pictured reads DEAD CAT BOUNCE.

Image source: Getty Images.

So what

In the absence of any actual "good" news to explain the stock's bounce higher, I can only surmise that what we're looking at today is a "dead cat bounce."

Here's how the reasoning goes: Despite widespread rumors that Apple's iPhone 13 would be a sat-phone, not everyone would have believed those rumors. Some would have bet that the rumors would prove false. The way they would have placed that bet would have been by shorting Globalstar stock (i.e., selling stock they did not own, in hopes of buying it back later, cheaper, and returning the shares to their rightful owners).

When the rumors in fact did prove false, and Globalstar stock fell, it was time to start closing out short bets. This, in a nutshell, is what we're seeing happen today. Short sellers are covering their shorts, buying back the stock, and causing the price to rise a bit.

Now what

But it won't last. In the absence of real good news for Globalstar -- a catalyst such as the Apple rumor -- all that investors in Globalstar own today is a heavily indebted, money-losing, satellite stock that sells for more than 26 times its unprofitable sales.

Eventually, investors are going to figure out that this isn't the best kind of stock to own, they will sell their shares, and Globalstar -- up today -- will go right back down again.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Nearly 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Globalstar Stock Quote
Globalstar
GSAT
$1.90 (0.53%) $0.01
Apple Stock Quote
Apple
AAPL
$148.03 (4.86%) $6.86

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
349%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.