Is Gilat Satellite Networks Stock A Buy?

Gilat Satellite Networks Ltd (NASDAQ:GILT) is a Petah Tikva, Israel-based VSAT satellite company that trades on both the NASDAQ and Tel Aviv stock exchanges.

The company creates satellite-based internet and telecommunication networks for remote areas, making it a recovery play that services the tourism and hospitality sectors. It’s also riding Elon Musk’s Starlink buzz.

The company attempted to buy its rival Comtech Communications in early 2020, but the deal fell through by October. This gave the company a $70 million breakup fee that it used to pay three special dividends.

Dividend investors should be careful, though, because the company has a long history, and these payments aren’t a part of it.

Will Gilat Satellite Networks produce strong returns for investors?

Gilat Satellite Networks Speeds Are Increasing

Gilat Satellite Networks is a VSAT satellite company that was founded in 1987. It initially struggled against larger rivals like EchoStar before expanding into rural markets in countries like Colombia, Chile, and Peru, along with reservations in the United States.

It then worked with Microsoft (MSFT) to develop two-way consumer satellite internet. This provides broadband capabilities to remote areas that can’t get access to the latest high-speed fiber.

This puts in competition with companies like Viasat and HughesNet in the U.S., along with Starlink when it’s eventually launched. However, satellite internet has several drawbacks over fiber-based broadband connections.

Even a basic DSL or coax cable internet provider is typically cheaper, while offering faster upload/download speeds and higher data caps. Modern fiber lines make DSL/cable look like satellite by comparison.

While Musk has plans to enable 300 Mbps speeds this year, it still lags behind 1 Gbps speeds offered by fiber. But it’s faster than 5G speeds of 70 Mbps and could be deployed easier in more rural areas.

Of course, Gilat’s LEO partnership with Telesat could provide speeds over 1.2 Gbps, making it an interesting prospect for investors.

Is GILT Stock A Buy?

Gilat Satellite Networks was valued at around $750 million in Q1 2021. GILT share price fluctuated wildly through the pandemic, ranging from $4.70 to $22.69 over a 52-week period.

Some of this is based on the company’s dividend, which came out to a 7.8 percent annual yield in 2020. That’s deceptive though, because the company doesn’t have a dividend payment history and no plans to continue.

Fourth quarter 2020 revenue was $42.6 million, which is down from $42.6 million in sales in the same quarter of the prior year.

This caused the stock to crash relative to its highs over $20.00, but it’s still up by over 100 percent from the start of the year. This highlights the risks inherent to investing in Gilat or any other small-cap company, especially one in an industry that hasn’t yet matured.

Satellite Connectivity Less Reliable Than Terrestrial

The biggest risk to Gilat Satellite Network is the competition. Much like the race to 5G that terrestrial companies are racing toward, Low-Earth Orbit (LEO) satellite technology is the next generation. It’s how militaries will communicate with low latency and broadcasters will present live 8K broadcasts and beyond.

But it’s not a proprietary technology, and it won’t be long before other companies catch up. And several are already in the works with contracts in China and elsewhere.

Satellite connectivity is also less reliable than terrestrial options. That’s why it wasn’t long ago picked up as the standard. It’s an emergency alternative for those who can’t get any other options. An overcast day can disrupt a satellite connection, which could cause some Pied Piper-like issues in live broadcasts (s/o HBO’s Silicon Valley).

And we can’t discuss satellite broadband without discussing Musk’s Starlink project. Because it’s an American company, it’s more likely to be adopted in the U.S. markets. Each government around the world is getting increasingly wary of using foreign communication networks.

These companies provide strong competition for Gilat that can’t be understated.

Does Gilat Compete With 5G?

Gilat isn’t the only VSAT company in the race. Companies like Viasat Inc (VSAT) and Hughes Electronics Corporation provide satellite internet to rural areas in the U.S. And Starlink is on its way.

But satellite internet isn’t the only option. In fact, many opponents of satellite broadband and television point out that cloudy weather and other conditions can great impact the speed and signal reliability.

Fiber internet providers, 5G wireless, and other connectivity technologies are also competing. As the world moves toward a more automated and connected society, connectivity is going to be a foundational element of it.

Ideally, a company would have multiple internet connectivity options, and satellite is best used for remote teams. Beyond that, even with high speeds, there’s likely a better hardwired alternative for those living in big cities.

Is Gilat Satellite Networks Stock A Buy? Conclusion

Gilat Satellite Networks is an Israeli VSAT company that works with both government and commercial businesses. It recently signed a deal for a supplier of LEO technology capable of providing high-speed internet faster than 5G and fiber.

But it’s not more stable, as weather conditions affect satellite signals. This makes it hard to rely solely on this technology for broadband connectivity. And the company’s revenue in 2020 was slower than the prior year.

Still, the prospect of an Elon Musk-led Starlink broadband network is enough to get investors excited. If the technology can provide high-speed internet to areas that couldn’t access it before, it could be a big win in the future. When that future translates to the company’s earnings statements is anyone’s guess.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.