Monopolies are not easy to find. From a shareholder point of
view, they can be quite lucrative though, since they can offer
rates of return that are more than "fair." The difficulty in
finding them is that few exist. They dominate their industry and
typically have significant barriers to entry that perpetuate their
monopolistic existence. Although government typically seeks to
destroy or deter monopolies, there are special cases, and that's
where satellite imagery company
) fits in.
DigitalGlobe has become a modern-day monopoly. It swamps its
competition in terms of size, and its barrier to entry is
tremendous: to compete with it, you need a constellation of
satellites, which is by no means cheap or logistically easy to do.
It has successfully created this monopoly by attracting the US
government as its largest customer. Ostensibly, it sells
non-classified satellite imagery to the government, but it's far
more likely that DigitalGlobe sells more to the government than
just that. In fact, it's quite likely that it sells spy imagery to
the US government since its eyes in the sky have far greater
resolution capabilities than what is available to commercial
DigitalGlobe consumed its largest competitor earlier this year to
become a virtual monopoly. Its birds in the sky take imagery that
finding use in an increasing number of
applications; far more than just defense and intelligence
So what about its fundamentals? With a year-over-year 47% revenue
growth rate and earnings rate that is even higher, fundamentally it
is definitely on the right track. If you look at its charts, it's
the same story over all time frames, as seen in the charts below.
On the daily time frame, Friday witnessed a reasonably good size
pullback off the highs. With the rainstorms and flooding in
Longmont, CO, last week, and particularly on Thursday and Friday,
DigitalGlobe's Longmont headquarters were likely of concern to
investors, and the price pressure a reflection of that concern. If
so, then this fast pullback on the short term time frame is most
likely an opportunity, not something to fear.
From a neoclassical point of view, the price pullback is nothing
more than a retest and regenerate sequence off the July and August
highs. Since the retrace happened within six bars of the breakout,
it could carry to the lows of the bars being retested. Those price
points are $32.65 and $31.30. I believe the higher price point is
possible but the latter unlikely on the first retrace.
If we move to the weekly time frame, you can see the bullish
behavior as an uninterrupted move $13 to $33 in the past year.
With such a steep move already, is there more to go? Take a look at
the monthly chart.
On the monthly chart we can see that the all-time highs are
currently under test. That test comes on increasing volume, which
likely means that the highs will eventually succumb and higher
highs will eventually print.
Now clearly we could see some consolidation at these levels given
the steep price rise that has already occurred, but DigitalGlobe
virtually monopolizes a market that's only likely to increase, not
decrease. When you add in all the other uses for digital imagery
that the company is now tapping into with its takeover of GeoEye,
longer term this continues to a be a winner and retraces are to be
bought -- still.