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3 Reasons Sirius XM May Stay Above $2 This Time

Rick Aristotle Munarriz
January 10, 2012

Shares of Sirius XM Radio (Nasdaq: SIRI  ) have closed at $2 or higher for three consecutive trading days. This is actually the first time since early August that the stock has traded in this territory, and rightfully jaded investors have a good sense of history.

The summertime fling that found the stock perched above the $2 mark lasted a little over a month. That run came after a springtime rush that treated investors to a late May high of $2.44 that proved fleeting after several weeks of glory.

Here we are again.

Bulls will argue that it's different this time. Bears have history on their side.

I'll cut through the suspense and serve up a few reasons this rally may stick.

1. Sirius XM really is cheaper this time
Sirius XM turned heads when it became a profitable company two years ago. Now the satellite radio giant is simply padding its bottom-line results.

Earnings multiples have a neat way of contracting when a growing company has a stagnant share price.

Let's try Sirius XM on for size. Analysts see the media maker earning $0.07 a share this year after closing out 2011 with a projected profit of $0.06 a share.

Just a penny? Not exactly. This represents improvement of 17%, and that goes for earnings growth and P/E ratios if the share prices remain constant. Analysts now see Sirius XM earning $0.10 a share come 2013 and $0.17 a share come 2014. These are material targets for a stock trading at $2 and change these days, and the fact that we're now ankle deep in 2012 brings us closer to those meaty milestones.

2. The competition came; it didn't vanquish
The bearish knocks on Sirius XM are fairly obvious. Cynics can't knock the company's lack of profitability or free cash flows now, so the bogeyman becomes the future.

Pandora (NYSE: P  ) went public in mid-June, as Sirius XM was on the rebound between its spring and summer flirtations with the previously unsustainable $2 price point.

Streaming music through Pandora is a popular pastime. The dot-com speedster is serving up more than 2 billion hours of music a quarter. It's also making it work on the bottom line, coming off of back-to-back profitable quarters.

Where are the other threats? Dashboard technology and the surprising speed that finds automakers incorporating a growing smorgasbord of ear candy for drivers with Bluetooth-enabled smartphones is astonishing. Have you seen commercials featuring Toyota's (NYSE: TM  ) Entune? Pandora and Clear Channel's iHeartRadio are