Few (if any) companies can ever be called a sure thing. No matter how great a company's promise, stratospheric P/E ratios and lofty growth projections can't continue forever. Sirius XM
Graphing the growth
Sirius XM has been a great comeback story, bouncing back from a major debt crisis to reclaim profitability heading into 2012. For some of the worst stretches of Sirius' doldrums, it sported a stock price so low you couldn't buy a gumball with it. The company now looks like the perfect bet for those who bought in at those prices, as it may head for $3 before too long.
A company should be improving its profitability along with its revenue for investors to take it seriously. It's one thing to sacrifice profit for explosive growth, hoping to turn on the afterburners later. Sirius has now proved that it can make satellite radio a profitable market, but with a P/E at 53.5, it's hardly cheap. Even its forward P/E of 30 seems a little rich, and much can happen on the road to fair value. Based on its progress post-crash, it looks like the market's enthusiasm might be getting a bit ahead of itself.
Sources: Yahoo! Finance and Morningstar.
But what does it mean?
This is no ordinary bubble. Sirius' rise came on the wave of a broader auto industry rebound that's seen profits return and financial obligations stabilize. Over a similar time frame, former fellow penny stock Ford
Despite being the only satellite-radio player, Sirius is far from alone in the war for your ears. Pandora Media
Foolish final thoughts
If you're a Sirius XM bull, you should know that there's no such thing as a perfect stock. With so much reliance on a resurgent auto industry, Sirius' flight higher could run into turbulence if eurozone problems slam into the global economy. I wouldn't expect to see its shares lining the bottom of the barrel as they once did, but neither does it look like today's buyers will see anything like 2009's opportunities.
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Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter for more news and insights. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of and creating a synthetic long position in Ford Motor. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.