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There has been a lot of controversy surrounding Sirius XM Radio Inc. (NASDAQ:SIRI) lately, especially on this site. This brings up one simple matter; should we buy, sell, or hold this stock? I have taken the time these past couple of days to see what the buzz is all about and whether we should get in, get out, or sit tight. There is no doubt this stock had a rock solid run all the way up to $60 right before the dot com bubble. What changed and is it worth another chance? What I will attempt to explain is whether or not its run is truly up, or if this is just a bump in the road.

The Buzz

Sirius XM Radio Inc. is in the business of broadcasting music, sports, news, talk, entertainment, traffic and weather channels in the United States. This company operates on fee-based subscriptions through two satellite radio systems; Sirius and XM. Subsribers enjoy this company's services through their cars, but also over the internet and through applications on Apple (NASDAQ:AAPL), BlackBerry (RIMM), and Android (NASDAQ:GOOG) mobile devices. As of December 31, 2010, the company had 20,190,964 subscribers. In April 2010, XM Satellite Radio Holdings Inc. merged with and into XM Satellite Radio Inc and in January 2011, XM Satellite Radio Inc. merged with Sirius XM Radio Inc. The current market price is $2.26 with a general analyst consensus for a one-year price target of $2.52. This represents an 11.5% upside potential on top of an already 32.16% 52-week return.

The Numbers:

Index

-

P/E

32.29

EPS (NYSE:TTM)

0.07

Insider Own

0.09%

Shs Outstand

3.76B

Perf Week

-3.83%

Market Cap

8.49B

Forward P/E

20.55

EPS next Y

0.11

Insider Trans

-31.30%

Shs Float

3.69B

Perf Month

5.61%

Income

426.96M

PEG

1.63

EPS next Q

0.02

Inst Own

43.01%

Short Float

7.75%

Perf Quarter

28.41%

Sales

3.01B

P/S

2.82

EPS this Y

874.48%

Inst Trans

3.32%

Short Ratio

5.44

Perf Half Y

22.83%

Book/sh

0.18

P/B

12.56

EPS next Y

57.14%

ROA

5.74%

Target Price

2.63

Perf Year

30.64%

Cash/sh

0.21

P/C

10.97

EPS next 5Y

19.80%

ROE

93.66%

52W Range

1.27 - 2.44

Perf YTD

24.18%

Dividend

-

P/FCF

20.89

EPS past 5Y

0.00%

ROI

8.31%

52W High

-7.17%

Beta

2.04

Dividend %

-

Quick Ratio

0.55

Sales past 5Y

36.45%

Gross Margin

59.09%

52W Low

78.35%

ATR

0.05

Employees

1526

Current Ratio

0.57

Sales Q/Q

6.50%

Oper. Margin

22.19%

RSI (14)

53.83

Volatility

1.75% 2.40%

Optionable

Yes

Debt/Eq

4.28

EPS Q/Q

150.18%

Profit Margin

14.16%

Rel Volume

0.65

Prev Close

2.26

Shortable

Yes

LT Debt/Eq

4.28

Earnings

Feb 09

Payout

0.00%

Avg Volume

52.54M

Price

2.27

Recom

2.10

SMA20

1.27%

SMA50

4.83%

SMA200

17.28%

Volume

8,665,611

Change

0.22%

The Competition:

Price

Market Cap

Revenue

Gross Margin

Net Income

SIRI

2.26

8.49B

3.01B

62.81%

426.96M

CMLS

3.41

515.46M

549.54M

39.32%

43.66M

Industry

N/A

175.74M

243.16M

57.53%

N/A

CMLS - Cumulus Media Inc.

SIRI's one-year EPS growth rate is 874.48%. This is substantially higher than its Broadcasting and Cable TV Industry at 47.36%. Given this information I was curious, why so much volatility with this stock?

The Good

One main factor is the expansion of the growing Ford Motor (NYSE:F) installation contract. This is expected to boost revenue from the OEM channel. Since late 2005, both Sirius and XM have also offered their services in Canada, through joint ventures with local partners. In Canada, Sirius hardware is also rapidly being adopted by OEMs. Most car companies come standard with Sirius radio and offer it free for the first few months. I believe this is a great feature and excellent marketing strategy. It seems to have proved successful so far and expect the trend to continue.

When Sirius and XM radio merged in 2010 competition in the industry was virtually eliminated. SIRI recently unveiled a "Best of Both" programming offering. This was in response to the awful pricing that was available upon the merge. The company was under one umbrella but still acted as two separate entities. The company offered an a la carte pricing plan, under which subscribers chose a combination of programming offerings from the two providers, but continued to operate as separate brands. This all changed with the "best of both" program. Sirius XM now offers a broad programming array targeted at various listener preferences and demographic segments. Through factory-installation programs with virtually all of the leading domestic and foreign automotive manufacturers [e.g. Ford, Daimler (OTCPK:DDAIF), Chrysler (FIATY.PK), General Motors (NYSE:GM), Honda (NYSE:HMC) and Toyota (NYSE:TM)], SIRI is ramping up in its primary auto OEM distribution channel. SIRI does not just offer in-car radio, but also a broad array of home and portable products at various retail price points. For Fiscal Year 2012, the company expects to add about 1.3 million subscribers.

SIRI's current quarter consensus estimate has increased notably over the past 90 days from 0.01 to 0.02, a gain of 21.4%. This improvement is significantly greater than its Industry average of -1.0% during the same time period. The stock has a four-star S&P rating with a bullish Moving Average Convergence/Divergence (MACD). The 21- and 50-day moving averages of $2.24 and $2.15 also signal a bullish pattern.

The Bad

The company has a relatively limited operating history. As of December 31, 2011, SIRI had about $3.0 billion of total debt and $774 million of cash and equivalents. SIRI's significant debt load could negatively affect the stock if the company does not meet its debt obligations. Also, competition is increasing from AM/FM radio, HD radio, and streaming media services such as Pandora (NYSE:P). Competition can eat away from profits and market share if the company does not offer a "superior" product or at least a competitive price. One major concern for me is if the company is unable to renew content and OEM contracts as fast as its peers, its business will suffer.

The stock is twice as risky as the market given its beta of 2.2, and if auto sales begin to plummet again this stock will take a nose dive, once again. The CEO Mel Karmazin projected that by 2015 over 70 million vehicles will have Sirius XM installed. The important information to dissect from this is not growth, but market saturation. Growth will eventually begin to flatten before the number of cars on the road with Sirius XM installed peaks. The customers with older vehicles will replace their existing cars with the same/existing subscriptions.

Conclusion

Yes the market seems saturated, yes debt is high, yes the company is the center of controversy, but NO the stock is not out. I read a lot of articles talking about the importance of virtually "ignoring" stocks under $5 because they are "too risky." I believe Sirius XM will continue to grow for various reasons and ignoring catalyst will only hurt investors. I look at Sirius XM as sort of a cell phone company. Think about it this way; the company buys towers and sells its service. Other than buying new towers and providing upgrades, the service is virtually the same. Isn't the cell-phone industry "saturated" and on top of that flocked with competition on each corner? Despite competition and market saturation, the cell phone companies do extremely well. This is what I expect from Sirius, exponential growth and product innovation to boost revenue. Also, many subscribers have multiple accounts given their multiple vehicles. The company is now profitable and I believe will continue to be and as a result pay down debt or return capital to shareholders. I have been long SIRI and stand by my position. This stock may make some surprising pullbacks to $1.80, but that will not last long. If it does I will pick up more shares at my buy-in price for the long position. One thing to note is when I say long I mean five years or more, not three to six months.

Source: Sirius XM: Buy Or Sell?