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The debate continues about whether SiriusXM (SIRI) satellite radio will be dominant, dominated or dismissed.A few years ago, in 2007, prior to the economic meltdown, Sirius was having a meltdown of its very own. Trading between $6 and $8 a share for most of 2005, it slid from $6 a share to $4 a share in 2006. By 2007 it was trading in a much tighter range between 3.50 - $4.00 and there were those that thought it might be a good buying opportunity.
This question was posed to me by friends that owned the stock and were considering buying more. I suggested they run. History shows that to be a good call. However, many investors, or at least traders that follow the stock made good money after the collapse picking up shares for pennies. I was not one of them, so props to those that jumped in -- I was making similar moves elsewhere.
Today the stock is hovering around $1.75, where it has been treading water for about 60 days. Is it a buy? It may or may not be, but either way it remains a highly speculative stock and I think there are many much better investments.
Sometimes I find stock investments by starting with a story and then follow up by examining the numbers. Sometimes I may run a stock screen and after finding a few possibilities begin to consider the story. In the case of Sirius, I believe most investors (I use the term loosely) like the story and the companies potential. Yes, it definitely is a story stock. It is the lone player in its niche. The problem is that the niche is limited, sort of.
Internet radio is available on smart phones, lap tops and iPads. Sirius competes with streaming radio only by becoming streaming radio. It is forced to do this to compete. By doing this isn't the company making the case that Internet radio is not just real competition, and growing, but they undermine their satellite is better pitch.
Casting aside the story, when you look at the numbers you have to cringe. Sirius earned a penny a share last year which was enough to actually give it a P/E ratio --- of 172. Clearly that is not relevant. Looking forward, analysts expect it to shrink to 57 in 2011, keeping in mind earnings have missed analysts estimates each of the last four years
The company has staggering debt and only a 1.53% profit margin. Insiders have been net sellers over the past year. The price-to-book and price-to-cash-flow are ridiculous at 27.43 and 28.59 respectively. But I suppose that it is equally ridiculous to look at these figures until the company has real earnings. After all earnings of 1 cent is basically the margin of error to me, so it is the same as not having any.
Looking at the story, we have a company that provides a good service but has growing competition, weighted down by a mountain of debt, and metrics that will leave the stock in the highly speculative area for years. If you put your money in SIRI stock, you will be in the company of more speculators and day traders then investors. This does not make for good company to me.
Sheldon Liber is an architect and the CEO of Chasing Value™ Asset Management, Inc. He writes the columns Chasing Value™ and Serious Money and is on twitter: @ChasingValue. Disclosure: Mr. Liber has no position, long or short in SIRI.
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Reader Comments (Page 1 of 1)
3-29-2011 @ 3:17PM
william lindblad said...
Depending on the route the economy takes (and presently it does not look like it's going to boom) this type of company is, as you say, niche. But it's a niche that can easily done without. There are other niches, like the salvage of old electronics for their metals who will likely be recession proof. so it all boils down to the service and if it is required or not.
3-29-2011 @ 3:24PM
joe said...
And had you purchased shares when it went to .05, you would have made a ton of money. You could buy it now, and still make a ton of money, but obviously by the tone of your article, (which makes no rational sense) you will be irrational and won't buy. Good luck loser.
3-29-2011 @ 3:38PM
Judd Magilnick said...
As a HEAVY, KNOWLEDGEABLE consumer of the product and its competitors, your article rings true.
I do not have the financial background to make a judgment - but on an experiential basis you are dead on.