There was a war in Iran yesterday. Surprisingly, markets were relatively calm on Monday, with the S&P 500 closing flat on the day as traders stepped in to take the dip. The tech-heavy Nasdaq Composite ended up even 0.15%.
While one can hope that markets will hold firm, as they have in past geopolitical conflicts, there is little reason to be optimistic if this conflict continues for months, even years.
One of Barchart’s 100 bullish price surprises yesterday was Gogo (GOGO), a commercial air broadband stock. It rose 12.29% on the day, with volume doubling its 30-day average, resulting in a 2.63 standard deviation, suggesting the stock’s volatility is high.
The catalyst for the gain appears to be the company’s Q4 2025 earnings, which it reported before markets opened on February 27. Interestingly, shares lost nearly 6% on Friday before pulling back yesterday. Its shares are up nearly 2% in 2026.
At one point, I was hired by the company.
“Gogo is an excellent company that provides exceptional service. Yet it doesn’t seem to consistently deliver to shareholders. While its stock is up 66% over the past five years, it’s trading at $23.96 in April 2022 and $32 in December 2013,” I wrote in August 2024.
“However, when you consider that GOGO’s free cash flow will reach $150 million in 2025, up from $45 million based on the midpoint of 2024 guidance, you’re looking at a company whose shares are potentially mispriced.”
It was then. What we are seeing now is not so encouraging.
If you’re ready to take a flight in this penny stock, all but the most aggressive investors should think twice. Here’s why.
According to the 2024 Q2 press release, Gogo is targeting $150 million in free cash flow for 2025, up from $45 million in 2024. It actually delivered $41.9 million in 2024, $3.1 million shy of its goal, and $89.2 million in 2025, 41% short of its goal.
However, the $150 million free cash flow goal fell by the wayside after it acquired Satcom Direct in December 2024 for $375 million in cash, five million restricted common shares worth $40 million, and potential earnings of $225 million between 20025 and 2028.
It now expects 2026 free cash flow to be in the middle of guidance at $100 million, up 12% from 2025. That’s about $925 million in revenue, a 10.8% free cash flow margin, nearly 100 basis points higher than in 2025. If it maintains that level of free cash flow, it should generate $51 million in cash growth. 2030, maybe even 2029.
The upside to these targets is that it pushes their free cash flow yield to 7%, based on a current enterprise value of $1.42 billion. I see anything between 4% and 8% as a reasonable value. Anything 8% or higher is value territory.
The problem is that Gogo continues to be stuck with his predictions. There is a reason why its share price has lost 60% of its value in the last five years.
This will require some back-of-the-napkin calculations since the company now reports its results as a single reportable segment. It has two reportable segments through Q2 2025.
For the six months ended June 30, 2025, Satcom Direct’s revenue was $251.75 million, 55% of the total of $456.35 million. Extrapolate that through 2025, and last year Satcom Direct’s revenue was approximately $500.77 million. According to the September 30, 2024, press release, Satcom Direct’s 2024 revenue was expected to be $485 million, suggesting that 2025 revenue grew by only 3.3%, while Gogo Legacy’s revenue fell by 7.9%.
Assuming the company hits the midpoint of its 2025 revenue guidance to $925 million, sales will increase by a little more than 2% in 2026.
The rationale for the acquisition was as follows:
“This transaction accelerates our growth strategy to expand our total addressable market to include 14,000 commercial aircraft outside of North America, and offers solutions that meet the needs of every segment of BA’s market,” said Oakleigh Thorne, president and CEO of Gogo.
So, it acquired Satcom Direct to increase its international reach in the BA (business aviation) market, which accounted for 80% of its sales, while also gaining access to the military/government mobility vertical, which accounted for the remaining 20%.
The press release stated that it has a combined installed base of 12,000 unique global customers. The 2025 10-K puts it at 8,050. Where did the 4,000 customers go? This is the million dollar question.
Forgoing $225 million in potential earnings, Gogo paid $415 million for Satcom Direct, nearly 5 times its adjusted EBITDA (earnings before interest, taxes, depreciation and amortization). Given Gogo’s enterprise value at the end of September 2024 (pre-acquisition quarter), its EBITDA was 10.14 times, according to S&P Global Market Intelligence, half of which seems reasonable.
At the end of 2023, Gogo had a total of $1.45 billion in contractual obligations, 62% of which remain for three years or more. By the end of 2025, its obligations have risen to $1.82 billion, of which 96% is outstanding. inside three years
If it cannot deliver further growth in the BA and military/government markets over the next three years, the cost savings from the merger will be offset by additional debt interest costs.
From a non-GAAP perspective, one could argue that the expected free cash flow in 2026 is more than enough to sustain the business.
However, its Altman Z-Score – which predicts the probability of bankruptcy proceedings in the next 24 months – is positive at 0.53, but still in the crisis zone (anything below 1.81), suggesting that bankruptcy is a real possibility.
As I said in the introduction, only the most aggressive investors should consider buying a flyer on GOGO stock. It’s bitten off more than it can chew.
As of the date of publication, Will Ashworth had no positions (either directly or indirectly) in any of the securities mentioned in this article. All information and data in this article is for informational purposes only. This article was originally published on Barchart.com
