When it comes to investing, knowing when to buy, sell, or hold a stock can mean the difference between making money and losing it in the market. However, making the best decisions for your investments can be challenging. Fortunately, investors can minimize risk by weighing both the pros and cons of a given stock before deciding how to act. Today, we'll take a closer look at Sirius XM Radio
The satellite radio company is proving to the world that it can command pricing power. Sirius raised its rates earlier this year in a move that caused many analysts to worry that the price hike would cause subscribers to jump ship. In fact, the opposite occurred. In its last quarter, Sirius reported better-than-expected subscriber growth to the tune of 622,042 net subscribers.
Successfully raising the monthly fees it charges users is no small triumph. Take Netflix
Luckily for Sirius, the move provided further evidence of the company's loyal fan base of paying customers.
Sirius is benefiting from a recent rebound in auto sales as well, which I suspect will continue into 2013. In fact, most new and pre-owned vehicles in the U.S. come equipped with Sirius XM. Better still, if you're lucky enough to own a new Aston Martin, you'll also receive a complimentary lifetime subscription to the satellite radio service.
As my fellow Fool Rick Munarriz points out, the company now has a whopping 22.9 million active accounts in North America. For comparison, rival satellite service provider DIRECTV
Investors will get a more thorough read on the company's financial health when Sirius XM posts its latest quarterly results next month. I'd be surprised if we didn't see a significant boost in revenue given the 12% price increase on monthly subscription fees.
Increased competition in the space is something potential investors should consider. New forms of media are constantly popping up in the broadcast radio industry, which means a stock's position in the market can fluctuate rapidly. New streaming services from contenders such as Pandora
These Internet radio firms use a freebie model to attract customers to their service. At last count, Pandora had more than 51 million active users. The company also recently kicked off its expansion initiative overseas, with trial services now running in Australia and New Zealand.
The push overseas should help Pandora grab new listeners, although that doesn't matter as much as it would for Sirius since those users don't pay for the service. Pandora's reliance on ad spending could weaken its position in the industry given the slow economy. Still, to remain competitive Sirius needs to maintain its focus on offering quality content.
Let's see how Pandora's stock measures up to Sirius XM in terms of price performance.
SIRI data by YCharts
Another major concern for investors is how the battle between Sirius XM and its largest shareholder, Liberty Media
The war between the two companies was waged earlier this year when Liberty Media made an appeal to the FCC to take control of the satellite-radio provider. Fool Michael Lewis suggests that perhaps a better way for investors to get exposure to Sirius XM is by buying shares of Liberty Media.
On the other hand, more conservative shoppers may want to hold off on shares of Sirius XM until the company reports quarterly earnings on Aug. 7.
Six months ago, I wasn't confident in Sirius XM's ability to realize revenue and drive growth. Today, I hold a different opinion. Having carefully weighed the risks and rewards in this name, I now find myself in Rick's camp with the bulls. Sirius XM continues to grow its subscriber base, despite tough competition and regardless of a steep price hike. That's why I'm giving the stock a three-year outperform rating on my profile in Motley Fool CAPS.
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Fool contributor Tamara Rutter owns shares of Netflix and Liberty Media. Follow her on Twitter, where she uses the handle @TamaraRutter, for more Foolish insights and investing advice. The Motley Fool owns shares of Netflix. Motley Fool newsletter services have recommended buying shares of Netflix. The Motley Fool has a disclosure policy. We Fools may not 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.
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