Is Iridium Communications' (NASDAQ:IRDM) 119% Share Price Increase Well Justified?

Simply Wall St
·3-min read

Iridium Communications Inc. (NASDAQ:IRDM) shareholders might be concerned after seeing the share price drop 20% in the last quarter. In contrast, the return over three years has been impressive. In three years the stock price has launched 119% higher: a great result. So the recent fall in the share price should be viewed in that context. The thing to consider is whether the underlying business is doing well enough to support the current price.

View our latest analysis for Iridium Communications

Given that Iridium Communications didn't make a profit in the last twelve months, we'll focus on revenue growth to form a quick view of its business development. When a company doesn't make profits, we'd generally expect to see good revenue growth. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.

Over the last three years Iridium Communications has grown its revenue at 10% annually. That's a very respectable growth rate. It's fair to say that the market has acknowledged the growth by pushing the share price up 30% per year. It's hard to value pre-profit businesses, but it seems like the market has become a lot more optimistic about this one! It would be worth thinking about when profits will flow, since that milestone will attract more attention.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

NasdaqGS:IRDM Income Statement May 25th 2020
NasdaqGS:IRDM Income Statement May 25th 2020

It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. You can see what analysts are predicting for Iridium Communications in this interactive graph of future profit estimates.

A Different Perspective

While the broader market gained around 6.1% in the last year, Iridium Communications shareholders lost 2.8%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 16% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For example, we've discovered 2 warning signs for Iridium Communications (1 is a bit concerning!) that you should be aware of before investing here.

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Thank you for reading.