Iridium Communications (IRDM +0.95%) stock soared 11.1% through 12:05 p.m. ET Tuesday after the company reported a big earnings beat despite missing slightly on sales this morning.
Heading into earnings, analysts forecast the satellite communications company would do $201.8 million in sales but earn only $0.17 per share on those sales. In fact, sales came in a bit short at $201.1 million -- but profits were a big $0.27 per share, beating Wall Street forecasts by a dime.
NASDAQ: IRDM
Key Data Points
Iridium Q2 earnings
Iridium earnings were terrific, not only beating estimates but reversing the company's year-ago loss of $0.24 per share. True, the company explained that "net income primarily benefited from a year-over-year decrease in depreciation expense associated with the extension of the estimated useful lives of the Company's satellites and the prior year write-off of the Company's remaining ground spare."
But even so, a profit's a profit.
Additionally, Iridium showed strong user growth, with billable subscribers up 13% year over year at 2.4 million. Even if total revenue grew only 4%, Iridium's ability to grow at all in the face of competition from SpaceX's Starlink is nothing short of amazing, and quite unexpected.
Is Iridium stock a buy?
The question now is whether Iridium can keep on growing in the face of that competition. And again surprisingly, Iridium thinks it can. Turning to guidance, management forecast service revenue growth (about 76% of total revenue) of between 4% and 6% this year.
As regards profits, Iridium only gave guidance in the form of "OEBITDA" -- operational earnings before interest, taxes, depreciation, and amortization (EBITDA), a very non-GAAP term. I'd prefer to see a more standardized prediction, and ideally, a free-cash-flow (FCF) prediction. But based on Iridium's prediction of flat OEBITDA, assuming FCF is similarly flat at about $256 million, the stock appears to be trading for a price-to-free-cash-flow ratio of about 12.
That doesn't seem too expensive. But on only 4% to 6% sales growth, I'd really prefer to see the stock a bit cheaper before recommending it as a buy.
