Sirius XM Won't Stay Below $2 for Long

Just when it seemed as if Sirius XM Radio (Nasdaq: SIRI  ) would stick to trading above $2, out went the floor. Shares of the satellite-radio provider dipped briefly below $2 yesterday before bouncing back at the close. The stock traded as low as $1.97 early this afternoon.

We may seem to be splitting hairs here, but this is the first time Sirius XM's stock has traded for less than $2 since the first week of January. The premium-radio giant seemed to be in a good place in recent weeks.

Sirius XM posted strong subscriber growth during the first quarter, bumping its guidance higher for all of 2012. A judge dismissed a lawsuit initiated by Howard Stern's camp, alleging that he was owed extra stock awards.

However, Liberty Media's (Nasdaq: LMCA  ) ability to increase its effective stake in the company to 46.2% is weighing on the shares that may have discounted an outright buyout. Now it seems as if Liberty Media is content to nibble its way to majority control of Sirius XM.

Back in January, just days after Sirius XM broke above the $2 mark, I offered up three reasons the stock may never trade below two bucks again. In the spirit of full accountability, I'll take my lumps for getting that wrong. Let's go over the three things I thought would keep Sirius XM afloat.

1. Sirius XM really is cheaper this time
"Earnings multiples have a neat way of contracting when a growing company has a stagnant share price," I argued at the time.

That's still true. Don't be upset with a stock that's simply marching in place as long as the fundamentals keep improving. Sooner or later, the better valuation situation will pay off.

We're now that much closer to 2013, and analysts see Sirius XM earning $0.10 a share next year. Value hounds will scoff when I point out that Sirius XM is now fetching just 20 times next year's projected profitability, but we've come a long way from the days when Sirius XM was a freshly merged and profitless media company.

2. The competition came; it didn't vanquish
If cynics can't knock Sirius XM's lack of profitability or free cash flows, the next obvious bearish attack is the model itself.

Skeptics call Sirius XM's technology transitory, meaning that satellite radio will eventually give way to streaming. Well, it's hard to see that happening. Pandora Media (NYSE: P  ) is now serving up more than a billion hours of Web-served music a month. There are now 51.9 million active listeners, 52% ahead of where Pandora was a year earlier.

Obviously, Sirius XM isn't growing as fast as Pandora, but it is still growing. Pandora is gaining eardrums, but they're coming at someone else's expense.

Last year saw automakers beef up their dashboard entertainment systems, increasing integration with smartphone streaming. Clear Channel's (OTC: CCMO.PK) iHeartRadio was relaunched in the fall, enhancing the free app's access to hundreds of Clear Channel terrestrial-radio stations as streams with a Pandora-like music discovery option.

Audio buffs had plenty of new options, but Sirius XM has been growing with every passing quarter for nearly two years.

3. It's going to be a good year
At least one of the catalysts that I was figuring would kick in this year did. Sirius XM's decision to raise its basic monthly rate by a reasonable 12% to $14.49 is causing average revenue per user to inch higher.

Other potential winning moves -- including the launch late last year of Sirius XM 2.0, and the promising Lynx receiver -- have yet to pay off. Speculation on what Liberty Media would do to increase its control of the company also hasn't paid off in a bullish manner.

However, it's still shaping up to be another year of reasonable top-line growth but even better bottom-line growth for Sirius XM Radio. It's a pity that it should fall back to revisit a price below $2, but it's hard to see this lasting for too long if the fundamentals continue to point in the right direction.

Running of the bulls
I remain bullish on Sirius XM's future. It should come as no surprise that I'm promoting the CAPScall initiative for accountability by reiterating my bullish call on Sirius XM for Motley Fool CAPS.

XM Satellite Radio was a Rule Breakers recommendation before the Sirius XM merger. It's now gone from the scorecard, but if you want to discover the newsletter service's next Rule-Breaking multibagger, a free report reveals all.

The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz calls them as he sees them. He owns shares of Liberty Media and is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


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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 May 15, 2012, at 11:51 PM, halina23 wrote:

    I sure hope you're right! I've been holding SIRI for almost a year now and it's been up a few pennies, down a few pennies, up a few, down a few, all this time. Without a dividend, I'm just parking my money there for nothing.

  • Report this Comment On May 16, 2012, at 8:50 AM, 67vair wrote:

    I agree with you. This is a good time to buy more at this price. It will not stay this low for very long.

  • Report this Comment On May 16, 2012, at 9:05 AM, P1015 wrote:

    Author--

    What is your SIRI price target?

  • Report this Comment On May 18, 2012, at 10:09 PM, UFirst wrote:

    This sucks.

    I bought this stock when it was $6.90 a few years back, before it combined with XM. Those poor people had XM @ over $14.00 a share, and now it's merged with Siris, it's down past $2.00.

    Besides pulling my hair out, I bought this turkey with 5000+ shares. Need I say I'm broke?

    If this turkey doesn't move past $12 to $14.00 a share, I'm bailing.

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