Investor Insights – Analyzing the Potential of SIRI Stock

Sirius XM shares fell by -1.8% during the day's afternoon session, and are now trading at a price of $4.9. Is it time to buy the dip? To better answer that question, it's essential to check if the market is valuing the company's shares fairly in terms of its earnings and equity levels.

Sirius XM Is Overvalued:

Sirius XM Holdings Inc. operates as an audio entertainment company in North America. The company belongs to the Consumer Discretionary sector, which has an average price to earnings (P/E) ratio of 22.96. In contrast, Sirius XM has a trailing 12 month P/E ratio of 15.3 based on its earnings per share of $0.32.

There is an important limit on the usefulness of P/E ratios. Since the P/E ratio is the share price divided by earnings per share, the ratio is determined partially by market sentiment on the stock. Sometimes a negative sentiment translates to a lower market price and therefore a lower P/E ratio -- and there might be good reasons for this negative sentiment.

One of the main reasons not to blindly invest in a company with a low P/E ratio is that it might have low growth expectations. Low growth correlates with low stock performance, so it's useful to factor growth into the valuation process. One of the easiest ways to do this is to divide the company's P/E ratio by its expected growth rate, which results in the price to earnings growth, or PEG ratio.

Sirius XM's PEG ratio is 2.38, which shows that the stock is overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.

EPS Trend Sustained Primarily by Reducing the Number of Shares Outstanding:

2018 2019 2020 2021 2022 2023
Revenue (MM) $5,771 $7,794 $8,040 $8,696 $9,003 $8,949
Revenue Growth n/a 35.05% 3.16% 8.16% 3.53% -0.6%
Operating Margins 30% 21% 11% 23% 23% 23%
Net Margins 20% 12% 2% 15% 13% 14%
Net Income (MM) $1,176 $914 $131 $1,314 $1,213 $1,271
Net Interest Expense (MM) $350 $390 $394 $415 $422 $428
Depreciation & Amort. (MM) $301 $468 $506 $533 $536 $537
Earnings Per Share $0.26 $0.2 $0.03 $0.32 $0.31 $0.33
EPS Growth n/a -23.08% -85.0% 966.67% -3.13% 6.45%
Diluted Shares (MM) 4,561 4,616 4,429 4,143 3,990 3,865
Free Cash Flow (MM) $1,525 $1,654 $1,668 $1,610 $1,550 $1,288
Capital Expenditures (MM) $355 $363 $350 $388 $426 $667
Current Ratio 0.17 0.3 0.31 0.4 0.35 0.33
Total Debt (MM) $6,888 $7,844 $8,500 $8,832 $9,452 $8,823
Net Debt / EBITDA 3.37 3.66 6.18 3.39 3.65 3.43

Sirius XM has rapidly growing revenues and increasing reinvestment in the business, wider gross margins than its peer group, and strong operating margins with a stable trend. However, the firm suffers from EPS growth achieved by reducing the number of outstanding shares and not enough current assets to cover current liabilities because its current ratio is 0.33. Finally, we note that Sirius XM has positive cash flows and significant leverage levels.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.