Earlier this month when Kerrisdale Capital first released its short thesis on Globalstar, Inc. (NYSEMKT:GSAT), it seemed like the core issues were technical and that anyone willing to do the heavy lifting of digging through those details and seeking out expert opinion could take a position on the now volatile stocks. But activist investor Richard Pearson argues that this technical view misses the bigger picture.

“Many retail investors are now busying themselves by reading up on the ins and outs of TLPS and FCC spectrum auctions and approvals. Instead, they should really be taking a further step back to see if it is purely a stock promotion,” Pearson writes on Seeking Alpha.

Globalstar

Without TLPS, we wouldn’t be discussing Globalstar

First, it’s clear that Globalstar, Inc. (NYSEMKT:GSAT) is in financial trouble. Net losses have been growing for years, and it’s on track to lose more than $1 billion this year, and could soon become an issue. According to Pearson, Globalstar is ‘functionally insolvent. If it weren’t for the prospect of monetizing its spectrum holdings for a multi-billion dollar premium Wi-FI channel we wouldn’t even be talking about GSAT.

But maybe that’s actually the problem. Instead of delving into the opposing views on TLPS and Wi-FI congestion, Pearson says that investors should look for the red flags that point to a probable stock promotion.

Globalstar

Signs of a possible promotion stock

Pearson’s first red flag is the relative lack of institutional interest. About 36% of Globalstar, Inc. (NYSEMKT:GSAT) free float is owned by institutional investors, but with such a large market cap Pearson says that should be more like 80% or higher and that anything sub-50% is a warning sign.

Second, the valuation story is based entirely on something that hasn’t happened yet, and it’s not the first time the company has put forward such a narrative: before Globalstar, Inc. (NYSEMKT:GSAT) was going to make a fortune on Wi-FI spectrum it was going to earn those revenues from satellite communications. Kerrisdale has made a similar argument about GSAT’s FCC experimental license applications, saying that they keep covering different scenarios because GSAT is struggling to find a workable business plan.

Globalstar

Finally, Pearson sees the lack of mainstream coverage as a sign that analysts at top 20 investment banks have had a look and taken a pass because there isn’t much to gain from initiating coverage as a Sell and they don’t want to initiate higher. The quick decline in stock prices following Kerrisdale’s short thesis presentation is a sign that there hadn’t been much in-depth research because sophisticated investors are mostly staying away.

This perspective on Globalstar, Inc. (NYSEMKT:GSAT) does answer one of the questions we kicked around about the day the Kerrisdale short thesis came out. Early in the morning the thesis was made available as a report, with Sahm Adrangi’s presentation following a few hours later. Even though they basically contained the same information, the market basically didn’t react to the written report but reacted quickly to Adrangi’s webcast. If the shareholders were mostly retail investors who couldn’t be bothered to read a complicated report but tuned in for the beginning of Adrangi’s talk, then the delayed reaction makes sense.