Why Gilat Satellite Stock Just Crashed

Gilat Satellite Networks reported Q4 FY2025 revenue of $137.0 million (up ~75% YoY) and adjusted EPS of $0.20, handily beating analyst expectations of $78.1 million and $0.14, but GAAP EPS were $0.13, down 38% YoY. For the full year, sales rose 48% while operating profit fell 15% and net income declined 23%. Management guided 2026 revenue growth of ~30% to about $510 million and adjusted EBITDA of $61–66 million but provided no GAAP profit or free-cash-flow outlook. Shares plunged ~19% intraday as the market focused on deteriorating GAAP profitability and the absence of clear earnings/FCF guidance despite strong top-line growth.

Analysis

Market structure: Gilat’s 75% revenue surge signals robust end-market demand for satellite communications (VSAT/terminal sales and operator services), which benefits RF/antenna suppliers and launch/constellation capacity providers. Yet flat operating income despite +75% sales implies either margin-dilutive product mix or rising opex/COGS, transferring pricing power to large volume customers and pressuring smaller vendors. Cross-asset: expect near-term equity volatility and elevated GILT option IV; credit spreads on small-cap comms names could widen, but sovereign FX (ILS) and commodity markets see minimal direct impact.

Risk assessment: Tail risks include a major contract cancellation, export/regulatory hiccup (e.g., ITAR-like restrictions), or a launch/fleet failure that would crater revenue recognition; probability low but impact high. Immediate (days) risk is headline-driven selloffs; short-term (weeks–months) hinge on margin trajectory and cash conversion; long-term (12–24 months) depends on GAAP profitability and sustainable FCF. Hidden dependency: heavy reliance on non-GAAP EBITDA masks working-capital draw and backlog cadence; catalysts are large award announcements or detailed GAAP guidance.

Trade implications: Tactical short bias on GILT is warranted given >45x trailing P/E and declining GAAP EPS; prefer capped option exposure to limit borrow risk. Pair trades: long higher-quality defense/comms (LHX) vs short GILT to capture premium on margin stability. Use 3–6 month option structures (put spreads on GILT, call spreads on LHX) to express view while limiting downside.

Contrarian angles: The market may be over-penalizing GILT for GAAP noise while ignoring 30% revenue guidance for 2026; if management publishes clear GAAP/FCF targets within 60–90 days, mean reversion rally of 20–40% is plausible. Conversely, if adjusted EBITDA fails to convert to cash, downside could exceed 40%; trade size accordingly and tie positions to concrete KPIs (backlog, gross margin, FCF).

Key Decisions for Investors

• Establish a 1–1.5% portfolio short position in GILT equity within 5 trading days to capture sentiment-driven downside; set stop-loss at a 10% adverse move or if management issues explicit GAAP profit and FCF positive guidance for FY2026.
• If unable/undesirous to short stock, buy a 3-month GILT put spread sized to 1% portfolio notional (buy ATM put, sell 25–35% OTM put) to express bearish view with defined risk; roll or close if GILT trades below 40% from current levels or if IV collapses >30%.
• Implement a 1–2% pair trade: long L3Harris Technologies (LHX) 1–2% vs short GILT 1% to rotate into higher-margin defense comms; target a 3–6 month horizon and take profits if relative outperformance exceeds 15% or LHX reports margin contraction.
• Prepare an event-driven long: allocate up to 2% to GILT if within 90 days management discloses GAAP guidance and the company confirms FCF positive or converts adjusted EBITDA to >$40M FCF for FY2026; entry then sized gradually (scale-in 50/30/20).
• Monitor weekly for three KPIs over the next 30–90 days—backlog growth (>30% YoY), gross margin expansion (+300+ bps QoQ), and operating cash flow conversion (>50% of adjusted EBITDA)—and adjust positions if two of three thresholds are met.