Sirius XM Radio, Inc. (NASDAQ:SIRI
) shares are in a downtrend and many investors seem willing to try to call a bottom on the stock. However, the stock should continue to drop even lower for a variety of reasons. This company does not have the strongest balance sheet. In a weakening economy, investors often dump companies with weaker balance sheets and this often causes these companies to decline significantly. According to Yahoo Finance, Sirius has about $3 billion in debt and about $520 million in cash. You can see that here
. In tough economic times, companies with strong, debt free balance sheets usually perform much better. The bond and stock market is now giving many signals that indicate we are headed for a recession. A new recession would likely result in lower car sales and that could turn into a lower rate of new subscribers for Sirius. Earnings estimates might decline for Sirius in the coming weeks and months and this could put more pressure on the shares.
Another big concern is that even though Sirius stock trades for less than $2, by many metrics, it really is not a bargain. When you look at the book value of about 13 cents per share, or the price to earnings ratio, the stock is actually expensive. The average stock in the S&P 500 Index has a multiple of around 11 currently, and Sirius trades at almost twice that. Does Sirius deserve to trade for almost double the price to earnings multiple of a company like Apple (NASDAQ:AAPL
)? I sure don't think so, especially when you consider that Apple has a superb balance sheet with many billions in cash. Sirius shares spent a good part of 2010 trading for less than $1 and a good part of 2009 trading under 50 cents. In late 2008, Sirius shares traded for as little as about 11 cents per share. The more this economy and stock market trends back to the financial crisis lows of 2008-09, the more likely Sirius shares will as well. The stock is looking expensive when evaluating the fundamentals, and now the charts show a major downtrend in the stock. With the shares only about 33 cents away from the 52 week low, I think it is just a matter of time before new lows are printed and that could be around $1 per share or even lower. The $1 level is particularly likely as we get into the heavy tax loss selling months and that will be starting in just a few weeks.
Here are some key points for SIRI:
Current share price: $1.45
52 week range: $1.18 to $2.44
Earnings estimates for 2011: 6 cents per share
Earnings estimates for 2012: 8 cents per share
PE Ratio: about 25
Book value: about 13 cents
Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.