Is Sirius XM Radio Inc (SIRI) Too Expensive?

Page 1 of 2

Sirius XM Radio Inc (SIRI)I often get emails asking, “If you think a stock is so cheap, then why don’t you own it?” But price alone does not qualify a company as investment-worthy; timing is also an important aspect. And in the case of Sirius XM Radio Inc (NASDAQ:SIRI), which has soared close to 40% over the past several months, many investors feel they’ve missed the boat.

One of the major catalysts for Sirius’ recent movement has been Liberty Media Corp (NASDAQ:LMCAD). The company has been buying shares of Sirius on the open market, and on Jan. 17 Liberty officially became majority owner of Sirius. According to an SEC filing, to seal the deal, Liberty acquired an additional 50 million shares of Sirius at an average price of $3.15. Contrary to recent opinion, this was not a ceiling.

However, although the stock has fluctuated — reaching a high of $3.25 on Feb. 1 — shares have essentially traded flat since Liberty took over. Remarkably, despite significant improvements in execution and the removal of much uncertainty related to former CEO Mel Karmazin’s departure , investors learned last week that everybody still hates Sirius, as more than 400 million shares were sold short at the end of January.

However, these shorts must remember that this is no longer just a wager against Sirius; it’s now a poor hedge against Liberty Media’s John Malone. When was the last time he lost at anything? Bears are still saying that Sirius’ stock is not trading on fundamentals. Then again, Sirius is not your average company. For that matter, not trading on fundamentals has not prevented the stock from ascending more than 6,000% since falling to a nickel four years ago. Granted, there’s a first time for everything; that time has not arrived.

But before we discuss where Sirius is going, let’s take a look at where it is. This is a company that is producing solid double-digit revenue growth, 13% year over year in the fourth quarter. Likewise, not only is this company extinguishing debt at a rapid rate, but adjusted EBITDA is soaring, including a 26% year-over-year jump in the fourth quarter.

Moreover, subscribers continue to prove each year how much they love the service. Self-pay subs grew 36% to roughly 1.7 million. And when you couple this with a stable 2% churn rate, it underscores not only how well this model is working, but that Sirius is finally showing it’s in fact a monopoly. But let’s glance deeper into the sub number for a moment. That net subscriber additions reached 2 million in one year is impressive. Not only does this represent 18% year-over-year growth, but it is 53% higher than the company’s prior guidance of 1.3 million. This supports prior theories that the company is known to lowball its outlook. Chances are, Sirius has done this again with 2013 projections. In that regard, let’s take a look at where is this company heading.

First, investors should also be encouraged that fiscal-year 2012 free cash flow, or FCF, skyrocketed 71% year over year to $709 million —  the highest total ever in the company’s history. However, according to the company’s recent guidance, FCF is projected to arrive at $900 million for 2013, or (just) 27% growth. This would be a meaningful slowdown to the 71% advancement in 2012. Likewise, management has guided for a 6% decline in self-pay subs and predicts that the company anticipates 30% less growth in subscribers. Who are we kidding here?

Investors should not make the mistake of thinking that even Sirius believes it will underperform to this degree. Revenue guidance of $3.7 billion assumes just 9% growth, which is 4% slower than 2012. Plus, this does not take into account the increase in self-pay net additions as well as the 12% price hike the company is slowly passing on to subscribers. Essentially, Sirius is projecting a slower rate of growth while car sales are still projected to trend higher. John Malone would not have just spent $158 million one month ago to become majority owner of a company in decline.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 9 Most Dangerous Countries for Tourists to Visit

Reign of Terror: The 10 Most Ruthless Politicians in History

On the Move: The 10 Fastest Growing Businesses in 2015

Fast Money: The 10 Highest Paying Fast Food Restaurants

Mixing It Up: The 14 Best Music Mashups of 2014

Rito Pls Buff: The 10 Least Played Champions in LoL Season 4

10 Covers of Popular Songs that are Better than the Originals

Must See TV: The 9 Most Anticipated Shows of 2015

The 15 Biggest Box Office Bombs of All Time

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!