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ViaSat: Risky Potential in Satellites

The company is the leading provider of satellite telecom services.

Image via Jorchr/Wikimedia

This is the second time we have recommended ViaSat (VSAT); we had the stock in our portfolio from September 2012 to February 2015 and enjoyed a 59.6 percent gain, recalls growth stock expert Stephen Leeb, editor of Brain Trust Profits.

Since we sold the stock, it hasn’t done very much in two-and-a-half years due to high capital expenditures keeping earnings growth subdued for now, but we think that will change.

ViaSat has two high-capacity satellite systems in space and is the leading provider of satellite telecom services. It serves residential, commercial, and government customers.

Its services range from residential broadband internet to in-flight Wi-Fi to classified work with the Department of Defense operates cyber security and national defense applications.

The company is working on a third, next-generation satellite system that it plans to launch in 2019. This third system will comprise of three geostationary satellites and have more capacity than the rest of the world combined and be capable of providing coverage to most of the globe.

Each of the three satellites will have bandwidth of more than 1 terabit per second (many times even the fastest Internet connections). In particular, ViaSat targets the fast-growing Asia-Pacific region with this upcoming launch.

ViaSat is the quintessential speculation.

If things go awry the stock could fall sharply, but if things go right you are likely looking at a many-fold gain. The company’s business model is a mirror of a middle-stage cable company, which is spending tremendous sums on capital to build out its network.

Traditional Wall Street metrics, such as EPS, have little meaning in the context of high depreciation, which subtracts from profits, but not cash flow.

VSAT is in the process of establishing the best satellite broad-band communication system in the world. Measured in terms of bandwidth per capita the company is far ahead of any competitor with its second-generation satellite.

The company’s record to date suggests a bet on success is a very good one. The company’s partners are deep pocketed. The potential in both commercial and military applications is enormous.

Over the next three years, the most used measures of cash flow are likely to grow at a 40 percent rate–and that is just close to the beginning. Obviously, there are many risks, but the potential is startling.

Stephen Leeb is founder and research chairman of the Leeb Group.

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