Trimble vs. Iridium Communications: Which Cathie Wood Space Stock is a Better Buy?

Trimble Inc. (TRMB) in Sunnyvale, Calif., provides technology solutions that enable professionals and field mobile workers to enhance or transform their work processes worldwide. It operates through four segments: Buildings and Infrastructure; Geospatial; Resources and Utilities; and Transportation. In comparison, Iridium Communications Inc. (IRDM) in McLean, Va., provides mobile voice and data communications services to businesses, U.S. and foreign governments, non-governmental organizations, and consumers worldwide using a constellation of orbiting satellites..

Disruptive innovation-focused ARK Investment Management LLC (or ARK Invest) is an investment advisor that gained importance after it generated colossal stock market gains in 2020. Cathie Wood’s newly added ARK Space Exploration & Innovation ETF (ARKX) began trading on March 30. “Space is already an invisible backbone to our economy, and we think that’s only going to become more so as [satellite] constellations launch,” said Ark Invest analyst Sam Korus.

The ETF does not include solely traditional space stocks, it also targets technology companies that operate in artificial intelligence, robotics, 3D printing, materials, and energy storage. Both TRMB and IRDM are among ARKX’s top 10 holdings. With a 9.4% portfolio weighting, TRMB is ARXX’s top holding, while IRDM holds the seventh position, with a 5.2% portfolio weighting as of October 21. IRDM has gained 16.1% over the past six months, while TRMB has gained 8.9%. In terms of their past year’s performance, TRMB is the winner with 66.6% gains versus IRDM’s 46.8%. Also, TRMB’s 29.6% gains year-to-date compares with IRDM’s 6.1% returns.

But which stock is a better buy now? Let’s find out.

Latest Developments

On October 19, TRMB Trimble® X7 3D laser scanner and Trimble FieldLink software fully integrated Spot® robot, which were developed in collaboration with Boston Dynamics. The solution facilitates autonomous operation on construction sites and can navigate potentially unsafe environments. Given the growing automation and robotics market, this launch should attract more construction customers and enable the company to keep thriving in this domain.

In August, IRDM announced Japan's Ministry of Internal Affairs and Communications’ (MIC) approval for Japanese adoption of Iridium Certus® broadband, Iridium Controller–Pilot Data Link Communications (CPDLC), other aeronautical services for aviation, and Iridium's Global Maritime Distress and Safety System service (GMDSS). This development demonstrates the company’s international recognition and its strong position in the industry.

Recent Financial Results

TRMB’s total revenue increased 28.8% year-over-year to $945.20 million in its fiscal second quarter of 2021. Its operating income stood at $144.80 million, up 48.4% from the same period last year. Its net income attributable to the company grew 120.5% from its year-ago value to $138.90 million. The company’s EPS increased 120% year-over-year to $0.55.

For its fiscal third quarter, ended September 30, IRDM’s total revenues increased 7.1% year-over-year to $162.16 million. Its operating income grew 18% from its year-ago value to $15.03 million. However, its net loss came in at $2.09 million, indicating a 47.9% decline from its year-ago value. The company’s net loss per share also declined 33.3% year-over-year to $0.02.

Note that TRMB is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Growth portfolio. Learn more here.

Past and Expected Financial Performance

TRMB’s revenues and EBITDA grew at CAGRs of 6% and 14.7%, respectively, over the past three years Analysts expect the company’s revenue to increase 8.7% in the current quarter, 14.9% in the current year, and 8.3% in the next year. The company’s EPS is expected to grow 3.3% in the current quarter, 16.6% in the current year, and 13.5% in the following year. Furthermore, TRMB’s EPS is expected to grow 10% per annum over the next five years.

In comparison, IRDM’s revenues and EBITDA grew at 6.1% and 12.3% CAGRs, respectively, over the past three years. Analysts expect IRDM’s payment to increase 1.9% in the current quarter, 3.2% in the current year, and 7.6% in the following year. The company’s EPS is expected to grow 66.7% in the current quarter, 88.1% in the current year, and 320% in the next year. And its EPS is expected to grow 10% per annum over the next five years.

Profitability

IRDM is more profitable with gross profit and EBITDA margins of 75.52% and 57.46%, respectively, versus TRMB’s 58.41% and 21.52%.

However, TRMB’s ROA and ROTC of 5.09% and 6.61%, respectively, compare with IRDM’s 0.77% and 0.80%.

Valuation

In terms of forward EV/Sales, IRDM is currently trading at 10.89x, which is 43.1% higher than TRMB’s 6.20x. Also, IRDM’s 9.26 trailing-12-months Price/Sales ratio is 31.6% higher than TRMB’s 6.33.

Thus, TRMB is relatively affordable here.

POWR Ratings

TRMB has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. In contrast, IRDM has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

TRMB has a B Growth grade, which is consistent with its stable rise in financials in the latest quarter. In contrast, IRDM has a Growth grade of C, which is in sync with its mixed financials in its last reported quarter.

Both the stocks have a C grade for Momentum. This is justified because both are trading above their 200-day moving averages but below their 50-day moving averages.

Of the 44 stocks in the Technology – Electronics industry, TRMB is ranked #8. Alternatively, among the 68 stocks in the Air/Defense Services industry, IRDM is ranked #34.

Beyond what we’ve stated above, we have also rated both the stocks for Value, Stability, Quality, and Sentiments. Click here to view TRMB ratings. Also, get all IRDM ratings here.

The Winner

Given that both TRMB and IRDM are among the top 10 holdings of Cathie Wood’s long-term growth-focused space ETF, these stocks should have immense growth potential. However, TRMB we think is the better Buy here, considering its more robust financial profile and relatively lower valuation.

Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Technology – Electronics industry here. Also, click here to view the top-rated stocks in the Air/Defense Services industry.

TRMB shares were trading at $87.19 per share on Thursday afternoon, up $0.68 (+0.79%). Year-to-date, TRMB has gained 30.58%, versus a 22.19% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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