We came across a bullish thesis on Gogo Inc. (GOGO) on Substack by Pound the Rock Investing. In this article, we will summarize the bulls’ thesis on GOGO. Gogo Inc. (GOGO)’s share was trading at $8.71 as of March 27th. GOGO’s trailing and forward P/E were 87.10 and 17.42 respectively according to Yahoo Finance.
A scientist in a lab examining a prototype RF chip for broadband radio transceiver front ends.
Gogo, Inc. (GOGO) is a high-quality business aviation connectivity provider, though its stock has faced challenges due to management’s delayed 5G rollout and concerns over SpaceX’s Starlink disrupting its dominant market share. The repeated pushbacks on 5G have damaged management’s credibility, and Gogo’s failure to launch its competing low-earth orbit (LEO) solution, Galileo, in partnership with OneWeb, has led to stock selloffs following Starlink updates. The company’s investment case hinges on its ability to execute the 5G rollout and compete in LEO, but its core business aviation segment remains exceptionally strong. Gogo commands over 90% market share in business aviation due to its proprietary air-to-ground (ATG) network, which is the only one of its kind in commercial use. The company has its systems installed in more than 7,000 aircraft, backed by valuable spectrum assets, and has spent hundreds of millions building its telecom infrastructure and forging deep distribution relationships. Gogo’s dominance extends to over 70% of new OEM jet shipments, and existing jets can be easily retrofitted with new Gogo hardware as 5G becomes available. The business jet market is expanding at a double-digit rate, with in-flight connectivity penetration still below 30%, offering significant growth potential. As a near-monopoly, Gogo’s business aviation segment generates EBITDA margins exceeding 40% and returns on invested capital above 30%. The key near-term catalyst is the expected launch of 5G and LEO services in late 2025. Once it becomes evident that Gogo will sustain its leadership, its recurring revenue base with minimal churn should command a valuation of at least 15x free cash flow. At that multiple, based on 2025 estimates, shares could double, while further market penetration and debt reduction could push intrinsic value to $30 per share by 2028.
Gogo Inc. (GOGO) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 26 hedge fund portfolios held GOGO at the end of the fourth quarter which was 25 in the previous quarter. While we acknowledge the risk and potential of GOGO as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than GOGO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.