Can Sirius XM Hit $2?

Sirius XM (Nasdaq: SIRI  ) is one of the most volatile, heavily shorted stocks out there. Since its days as a penny stock to its eventual glorious resurgence, Sirius has taken investors on one heck of a ride. But things have since calmed down a bit for the satellite radio giant: Subscriber growth has taken off, churn is down, and the "Howard Stern question" has finally been put to rest.

Accordingly, the stock has gone up by 67% over the past year and is up 15% over just the past three months -- but how much further will it climb? Investors want to know what it will take for Sirius to hit the $2 mark, so we asked three of our Fool contributors that exact question.

Anders Bylund, Fool contributor
Can Sirius hit $2 per share? Sure it will.

Can Sirius stay above $2 for any length of time? That's the million-dollar question.

The stock is priced for perfection with a P/E ratio of 160 times trailing earnings and an enterprise value over 12 times trailing EBITDA. That's what the 6.9% short-sale cohort have seen and acted on. Satellite broadcasting rivals DirecTV (Nasdaq: DTV  ) and DISH Network (Nasdaq: DISH  ) look tremendously affordable by comparison.

Add in the fact that 65% of Sirius' shares are not owned by insiders, institutions, or other corporations, and you get one jumpy son of a gun

As long as Sirius executes flawlessly, everything is hunky-dory. But the first sign of weakness will bring terrible retribution from nervous shareholders. Howard Stern won't be a concern for the next five years, but is that enough to keep the ship on an even keel? I wouldn't bet the house on it.

Rick Aristotle Munarriz, Fool contributor
The easiest path to fresher highs may come from this year's rollout of Sirius XM 2.0. If the platform upgrade is revolutionary -- and not simply evolutionary -- investor excitement alone will get the stock above the magical $2 mark.

Dashboard tech is making great strides lately. Toyota's (NYSE: TM  ) new Entune multimedia system allows owners of Bluetooth-capable phones free access to Bing-powered navigation, the ability to snap up multiplex admissions through MovieTickets.com, and plan for dinner after the flick through OpenTable (Nasdaq: OPEN  ) restaurant reservations.

Will Sirius XM's new interactive platform raise the bar? As a premium service it doesn't have much of a choice. It will be competing against some pretty impressive automotive enhancements that carmakers are providing without monthly subscriptions in an effort to clear more cars off the showroom floor.

CEO Mel Karmazin hasn't revealed much of what the next generation of satrad receivers will do. We know that they're scheduled to hit the market during the fourth quarter, ahead of the holidays. Subscribers will also be able to access a broader range of content. Karmazin may be keeping mum on the exact specs to keep folks buying new receivers between now and then, but Sirius XM may also be tightlipped to make sure that the media giant can top everything else on the market.

The stock may blast through the $2 barrier before Sirius XM 2.0 hits the market. We have a couple of more quarterly reports to digest. Rival Pandora's IPO may draw attention to this niche. The heavily shorted shares are never too far away from a short squeeze if a magnetic celebrity signs a multiyear deal or a premium streaming service launches internationally.

Sirius XM is in better shape than bears think, and there are several roads leading to higher price points.

Tim Beyers, Fool contributor
Sirius XM has been treating me well. After years of skepticism, in October I called for a rally based partly on valuation and partly on a lack of institutional ownership. Sooner or later, I argued then, Big Money buyers would no longer be able to ignore Sirius' rebel yell. The stock is up 37% since, outpacing the S&P 500 by more than 25 percentage points.

Like many of Sirius' more passionate investors, I'm nowhere near ready to take profits. Why? The valuation doesn't justify a sale. Sirius trades for just 3.45 times its enterprise value when compared to revenue, a 16% premium to where it was when I first added the stock to my CAPS portfolio.

That the stock has risen much faster than the multiple tells me the business is improving structurally as revenue grows. And that, indeed, is the case: Returns on capital improved more than 46% year-over-year during the December quarter.

But I also like Sirius' subscription-driven model. Downloads make less sense in a market where broadband is becoming more pervasive, and in the process favoring streaming service providers such as Netflix (Nasdaq: NFLX  ) , Akamai (Nasdaq: AKAM  ) , and ... yep, Sirius XM. It's a virtuous development that means fewer satellites, fewer expenses, and a lot more profits.

Tim Beyers owns shares of Akami. Akamai Technologies and OpenTable are Motley Fool Rule Breakers choices. Netflix is a Motley Fool Stock Advisor recommendation. Alpha Newsletter Account, LLC has bought puts on Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (11) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 19, 2011, at 11:03 AM, Austin77478 wrote:

    Concise article!

  • Report this Comment On April 19, 2011, at 11:22 AM, motleymarty wrote:

    SIRI is fab. No question. I feel as if I've invested in a stock that is on the launch pad. I don't short. I'm patient with this holding because I like the service. I'm just waiting till liftoff.

  • Report this Comment On April 19, 2011, at 1:06 PM, Cool700 wrote:

    Check the short interest and dates. Most of the shorts started a short at under $1.24 .

    Most of them are in a hole.

  • Report this Comment On April 19, 2011, at 6:58 PM, plange01 wrote:

    sirius is far more likely to hit 2 cents....

  • Report this Comment On April 19, 2011, at 10:58 PM, artstudio1 wrote:

    I've been buying this stock for over 6 years now and I am still accumulating more and more shares every week. I've ridden the stock all the way down to 15 cents and I am now enjoying the ride back up. I've purchased shares from $6.95 cents a share all the way down to 15 cents. I'm now in the positive and it's frosting on the cake. The manipulators WILL NOT deter my thoughts nor will I change my position (LONG). I'm in this for the long haul . . .

    This stock will continue to grow for many years and those who have patience will enjoy the fruits of life. I know I will. PEACE!

  • Report this Comment On April 19, 2011, at 11:03 PM, artstudio1 wrote:

    When Sirius XM breaks out the 2.0 platform get ready for another decent boost to the stock. It should easily push two-dollars a share.

  • Report this Comment On April 19, 2011, at 11:55 PM, hbofbyu wrote:

    So all they have to do is get all of China to subscribe to arrive at a normal P/E ratio. I went on a road trip recently with a Sirius subscriber friend. We were board. For a generation who grew up on the internet, 100 stations is not enough to choose from - especially when 90 of them are irrelevant. We turned off the radio and streamed YouTube, Pandora and books on tape through my HTC with my unlimited data plan. Now we were cooking because we had a choice! The sweet interactive freedom that Sirus does not offer.

    Siri better change their business model. The twenty-somethings don't even know who Howard Stern is.

    Seriously.

  • Report this Comment On April 20, 2011, at 12:30 AM, Fredlee009 wrote:

    Sirius XM (Nasdaq: SIRI ) is one of the most volatile, heavily shorted stocks out there.

    Lie. Not even close by percentage. Nice try. Next.

    Automakers are offering more and more connectivity to car functions, no content. I dont care if you can dial up pandora without using ur hands, its still not sirisu xm and its still not adding 500 million dollars a year to XM and Ford via revenue sharing. How much money has every service combined offered on ford synchs(Sirius is also on it remember) made the auto makes? Probably zero. Car makers and sirius xm go together like chocolate and peanut butter. Both love each other. So thats just bad analysis. Very bad. Not even comparing similar services. Like saying blue tooth is going to bankrupt at&t. Just silly. Ya that makes no sense, so does saying Ford Synch is trouble for sirius xm.

    But good job, u got my click. Too bad you lost ur credibility and honor to get it. Add you to the long list of sirius bashers for clicks, who have no clue about the company, shouldnt be writing about it, and could care less about being factual.

    Good job!!

  • Report this Comment On April 20, 2011, at 12:31 AM, Fredlee009 wrote:

    Sorry, I meant GM and Ford above, not XM and Ford.

  • Report this Comment On April 20, 2011, at 12:32 AM, Fredlee009 wrote:

    Add in the fact that 65% of Sirius' shares are not owned by insiders, institutions, or other corporations, and you get one jumpy son of a gun.

    False. Over 60% of all outstanding shares are instiutionally owned. Float yes. Float is irrelevant.

  • Report this Comment On May 01, 2011, at 7:10 AM, TMFZahrim wrote:

    @Fredlee, I'm sorry but you need to check your own facts. Try a simple Yahoo! Finance lookup, for example:

    http://finance.yahoo.com/q/mh?s=SIRI+Major+Holders

    % of Shares Held by Institutional & Mutual Fund Owners: 34%

    % of Float Held by Institutional & Mutual Fund Owners: 34%

    Why are they the same? Because only 1% of all shares are owned by insiders, so float is pretty much equal to total shares.

    I get my data from Capital IQ, which only tells the same story in greater detail.

    Anders

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