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Iridium Communications (IRDM)

Today’s buy idea is a very low-priced value play with a seasonal component. The new recommendation is followed by a sell alert on United Stationers (USTR).

Iridium Communications (IRDM)
from Crisis & Opportunity

Buy Iridium (IRDM:NASDAQ) as a bounce back play on space communications.

Iridium is a global leader in providing satellite communication services....

Today’s buy idea is a very low-priced value play with a seasonal component. The new recommendation is followed by a sell alert on United Stationers (USTR).

Iridium Communications (IRDM)

from Crisis & Opportunity

Buy Iridium (IRDM:NASDAQ) as a bounce back play on space communications.

Iridium is a global leader in providing satellite communication services. The company sells voice and data communication services to areas that are hard to reach – places where cell phones and landlines are not available. Its customers are the military, maritime, aviation and oil and gas industries, among others. Research shows that the industry is expected to be worth $2 billion-$3 billion, growing at an annual rate of 10%, by 2017.

More importantly, machine to machine data is expected to grow faster in the future as technology improves and the cost falls to levels that make it affordable to more uses – think drones.

Gravity After Earnings

The company missed earnings, reporting 19 cents a share compared with the 21 cents a share Wall Street was looking for. As you can see by the chart, the stock was crushed. This sell off is overdone. The company has a forward P/E of 6 and a PEG ratio of just 0.50. The rule of thumb is that if a PEG is below 1.0, the company is a buy.

Furthermore, the company just signed a $400 million five-year deal with the Department of Defense to provide satellite airtime services to meet its communications needs. This ensures steady cash-flow.

If you compare Iridium to its competitor Globalstar (GSAT: OTC), it is undervalued by more than half. GSAT has no P/E because it lost money last quarter. On the sales side, last year GSAT reported revenue of $78 million compared to IRDM’s $376 million. And yet IRDM has a market cap of just $430 million compared to GSAT’s $1.12 billion. IRDM could more than double and still be undervalued compared to its peer – that’s absurd.

Short Squeeze

Iridium has a short position of 17% of its shares as of October 15. This sets up a possible short squeeze on any positive announcement. Given the volatility of this stock, once it starts moving higher, the shorts will have to cover, which will boost share prices higher rapidly.

Here is a five year chart of IRDM with monthly candlesticks:

As you can tell, this is a share price that likes to move. It sells off in the summer and bounces in October. We are at a strong support line and showing a doji after a long down trend. In 2011/2012, the stock bounced from these levels to above $9 for a quick 69% return. The bet is that it will happen again.

Buy Iridium under $5.70 (current price: $5.61). Look to sell at $9.00 in July 2014. Put your stop loss in at $5.

Christian DeHaemer, Crisis and Opportunity, www.angelpub.com, 877-303-4529, November 15, 2013