Shares of Sirius XM Radio
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.
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
The 2011 arrival of Entune and Pandora's stellar growth should have dealt Sirius XM a blow, but it didn't. CEO Mel Karmazin revealed that the company closed out the year with a better-than-expected 1.7 million more subscribers.
Companies vying for aural attention will continue to grow in number. Their strategies and success bear watching. However, as long as Sirius XM is growing -- the way it has over the past year and a half as many new technologies have arrived or expanded -- the competition isn't a problem.
3. It's going to be a good year
I went over four things that Sirius XM must do this year to keep the good times coming. This doesn't involve any kind of heavy lifting on Sirius XM's part. It just needs to see the seeds it's planted sprout.
Sirius XM will be raising its basic monthly rate by a reasonable 12% to $14.49. Sirius XM 2.0 is here, and the promising Lynx receiver hit the market two weeks ago. It's up to Liberty Capital
If the market tanks, all bets are off. Sirius XM is a high-beta stock, and it won't react favorably if the market's volatility deals investors a sharp blow to the downside.
However, Sirius XM's valuation, recent history, and promising future should support its share price. Sirius XM is cheaper and packing a more sustainable model than you probably think.
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Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story, except for Liberty Capital. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.