Back in the late 1990s (the high-tech bubble era), there were two satellite radio-broadcasting companies, Sirius (NASDAQ:SIRI) and XM-Radio, each trading north of $40, as the momentum crowd chased after their shares, cheering anytime an auto-maker would sign up with either company; and focusing on the popular stock market metric at the same time Earnings Before Interest, Depreciation and Amortization (EBIDA); and subscription rates (though the first six months were for free).
In the early 2000s, as the high-tech bubble burst, the momentum crowd deserted the stock of the two companies that eventually had to merge to survive, forming Sirius XM Radio. But the new stock continued to descend, trading in pennies, before the momentum crowd re-discovered it and pushed it close to the $3 mark. What has changed?
The merger of the two companies allowed the new entity to become a monopoly in satellite broadcasting, while reaping of the benefits of economies of scale associated with a larger organization. This eventually helped the company to improve its fundamentals, attracting a new momentum crowd, dreaming of the stock's old glory days. While such days may be far away, I do believe that the stock is a short-term buy for aggressive investors after a decent earningsreport (especially on the revenue side); and good technical and fundamentals:
1. A bullish technical chart. While the price of the stock has improved, it still trades below the 100 and 200-moving averages.
2. Improving financials. Profit margins have jumped from 9.2 percent a year ago to 24.03%, according to the most recent earnings report; Total/Debt to Equity dropped from 492 to 71.73; and the company has plenty of cash at hand.
Sirus XM Radio
Quarterly Revenue Growth
Quarterly earnings growth
Total Debt/Equity (mrq)
*Fye Dec 30, 2013; Source: Yahoo.Finance.com
A Few Words of Caution: Sirus XM Radio continues to face three challenges: First, a technology challenge. With the rapid change in broadcasting technologies, and the Internet radio gaining ground, it is a matter of time before satellite-radio becomes obsolete. Second, an economic challenge. Satellite subscriptions are part of consumer discretionary spending that is usually negatively affected by a weak economy. Third, a content challenge. As is the case with other broadcasters and content distributors, satellite radio is at the mercy of content producers. Just see what Starz Group (LSTZA) did to Netflix (NASDAQ:NFLX).
The Bottom Line: Sirius is a "fallen angel," which aggressive investors may want to pick up with caution.