Viasat Inc. Stock Can Rise Further

Despite an almost 20% rise from its low in March, at the current price of $33 per share, we believe Viasat Inc. stock (NASDAQ: VSAT) has further upside potential. Viasat, a provider of high-speed satellite broadband services and secure networking systems, saw its stock rise from $27 to $33 off the recent bottom, much less than the S&P which increased by over 60% from its lows. Further, the stock is still over 40% lower than its 2020 pre-Covid high of $57. Viasat stock rose as high as $47 in May 2020, as the S&P 500 recovered from its lows, and we believe that Viasat stock could regain this post-Covid high, rising over 40% from its current level, driven by expectations of strong demand growth. Our dashboard What Factors Drove -44% Change In Viasat Stock Between 2018 And Now? has the underlying numbers behind our thinking.

The stock price drop since 2018-end came despite a 45% rise in revenue from $1.6 billion in 2018 to $2.3 billion in 2020 (VSAT’s fiscal year ends in March). Combined with a 6% rise in the outstanding share count, Viasat’s revenue-per-share rose 37% from 2018 to 2020.

Viasat’s P/S (price-to-sales) multiple dropped from 2.2x in 2018 to 2.1x by 2019 end, but has since dropped to 0.9x on the back of poor revenues in 1H 2021. We believe that the company’s P/S ratio has the potential to rise in the near term on expectations of future demand growth and a favorable shareholder return policy, thus driving the stock price higher.

Where Is The Stock Headed?

The global spread of coronavirus and the resulting lockdowns in early 2020 have seen a drop in manufacturing activity. This has hurt Viasat’s satellite broadband product sales in the military and commercial markets, which is evident from Viasat’s 1H 2021 results, where product revenues came in at $507 million vs $570 million for the same period last year. Service revenues rose to $578 million from $559 million for the same period last year. Further, due to a marginal rise in operating expenses and the effective tax rate, EPS dropped from -$0.14 to -$0.16 for the first six months of FY 2021.

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With manufacturing activities resuming, we expect VSAT’s product sales to rise in the medium term, driving up total revenue, and if the company manages to keep operating expenses in check, profitability could rise steadily. We expect this to drive up the company’s P/S multiple, and believe that Viasat’s stock can rise around 40% from current levels, to its recent high of $47.

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