This Penny Stock Was One of Yesterday’s Top Bullish Price Surprises. Why I Wouldn’t Touch It With a 10-Foot Pole.
It now expects 2026 free cash flow to be $100 million at the midpoint of its guidance, 12% higher than in 2025. That’s on revenue of $925 million, a free cash flow margin of 10.8%, about 100 basis points higher than in 2025. If it maintains this free cash flow growth rate, it should hit $150 million in 2030, possibly even 2029.
The upside of these targets is that it puts their free cash flow yield at 7%, based on a current enterprise value of $1.42 billion. I consider anything between 4% and 8% to be fair value. Anything 8% or higher is a value territory.
The problem is that Gogo continues to be hit-and-miss with its projections. There’s a reason its share price has lost 60% of its value over the past five years.
How Has Satcom Direct Performed?
That will require some back-of-the-napkin calculations because the company now reports its results as a single reportable segment. It maintained two reportable segments through Q2 2025.
In the six months ended June 30, 2025, Satcom Direct’s revenues were $251.75 million, 55% of its $456.35 million overall. Extrapolate that through all of 2025, and Satcom Direct’s revenues last year were approximately $500.77 million. According to the Sept. 30, 2024, press release, Satcom Direct’s 2024 revenues were expected to be $485 million, suggesting its 2025 revenues grew by just 3.3%, while Gogo’s legacy revenues fell by 7.9%.
Assuming the company hits the midpoint of its 2025 revenue guidance at $925 million, sales will increase by less than 2% in 2026.
The rationale for making the acquisition was as follows:
“This transaction accelerates our growth strategies of expanding our total addressable market to include the 14,000 business aircraft outside North America, and delivering solutions that meet the needs of every segment of the BA market,” said Oakleigh Thorne, Gogo Chairman and CEO.
So, it acquired Satcom Direct to increase its global scale in the BA (business aviation) market, which was 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 had a combined installed base of 12,000 unique global customers. The 2025 10-K puts that at 8,050. Where did 4,000 customers go? That’s the million-dollar question.
Forgetting the $225 million in possible earnouts, Gogo paid $415 million for Satcom Direct, approximately 5 times its adjusted EBITDA (earnings before interest, taxes, depreciation and amortization). Given Gogo’s enterprise value at the end of September 2024 (the quarter before the acquisition) was 10.14 times its EBITDA according to S&P Global Market Intelligence, half that seems reasonable.
The Bottom Line on GOGO Stock
At the end of 2023, Gogo had contractual obligations totalling $1.45 billion, 62% of which were due in three years or more. At the end of 2025, its obligations had grown to $1.82 billion, with 96% due within three years.
If it’s unable to deliver further growth in the next three years in both the BA and military/government markets, cost savings from the merger will be swamped by interest expenses on the additional debt.
From a non-GAAP perspective, one could argue that the free cash flow expected in 2026 is more than sufficient to keep the business afloat.
However, its Altman Z-Score — which predicts the likelihood of bankruptcy proceedings over the next 24 months — is positive at 0.53, but still in the distressed zone (anything under 1.81), suggesting bankruptcy is a real possibility.
As I said in the introduction, only the most aggressive investors should consider taking a flyer on GOGO stock. It’s bitten off more than it can chew.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
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