Did my dueling partner Anders Bylund really just try to defend Sirius Satellite Radio (NASDAQ:SIRI) based on valuation? Frankly, even after its tremendous tumble, its shares are nowhere near cheap by any rational metric.

In 2006, the company took in $637 million in revenue, yet managed to expand its losses to more than $1 billion. Let's be charitable and assume that eventually, Sirius can grow to be 10 times the company it was at the end of 2006. Let's also assume that its mature valuation and profitability could be compared to satellite television duopoly EchoStar (NASDAQ:DISH) and DirecTV (NYSE:DTV). To draw that comparison, I'd use these key metrics:


Net Margin

Forward P/E Ratio










At 10 times the size it was when 2006 ended, Sirius would take in about $6.4 billion in revenue. Assuming it hits that 8.02% net margin, it'll wind up with about $511 million in profits -- as a mature company. That would give it a potential terminal value of about $8.9 billion, assuming it can profitably grow to 10 times its current size. Anders mentioned comparing satellite radio today to satellite TV 10 years ago. Fair enough, for the sake of argument, we can give Sirius 10 years to mature.

With a current market cap around $4.2 billion and potential mature market cap of $8.9 billion, 10 years from now, it'd imply a share price growth rate of around 7.8% per year. That's assuming Sirius completely stops diluting its owners' stakes. Realistically, assuming Sirius slows its dilution rate to 4% per year, shareholders would be looking at about a 3.8% annualized return for the next decade.

Even with all those charitable assumptions in Sirius' favor, I fail to see a compelling valuation.

The duel's not done yet! Go back and read the other arguments, then sound off in Motley Fool CAPS and vote for the winner.

At the time of publication, Fool contributor Chuck Saletta did not own shares of any company mentioned in this article. The Fool has a disclosure policy.