Are Shares of Sirius XM a Buy Under $6?

Sirius XM Holdings Inc. (SIRI) provides satellite radio services on a subscription basis in the United States and Canada. Pandora, a subsidiary of SIRI, is the largest ad-supported audio entertainment streaming service in the United States and together they reach more than 100 million people each month with their audio products. It operates two complementary audio entertainment businesses: Sirius XM business and Pandora business.  It also offers connected vehicle services to automakers and has a healthy relationship with them.

The company is planning on seeing growth as the economy revives. However, as the global economy is still struggling with coronavirus, with rising cases in the United States and increased restrictions in Europe, the outcome of SIRI’s expansion plan is still in question. 

SIRI lost 44.5% in just three months since hitting its 52-week high of $7.40 in February. The stock hit its 52-week low of $4.11 in April. This, combined with several other factors, has led to a “Neutral” rating for the stock in our proprietary rating system.

Here is how our proprietary POWR Ratings system evaluates SIRI:

Trade Grade: C

SIRI is currently trading above its 50-day and 200-day moving averages of $5.57 and $5.67, respectively, indicating an uptrend. The stock has gained 10.19% over the past six months but it has declined 18.7% year-to-date.

Sirius XM added approximately 264,000 net new self-pay subscribers for the quarter ended June 30, 2020. However, paid promotional subscribers declined as shipments from automakers offering paid trial subscriptions with the purchase or lease of a vehicle fell. As for Pandora, advertising revenue declined 31% year-over-year to $211 million. Pandora’s gross profit declined 55% year-over-year and Monthly Active Users (MAUs) were 59.6 million in the second quarter, down 8.2% from the year-ago value.

Buy & Hold Grade: C

In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade takes into account, SIRI is not positioned well. The stock is currently trading 26.7% below its 52-week high of $7.40, which it hit on February 20th.

SIRI’s weak performance over the long term can be attributed to the declining popularity of radios. With streaming platforms gaining momentum over the past couple of years, and most cars having built-in WiFi to connect to such sites, radios have lost their charm.

Peer Grade: A

SIRI is currently rated #2 out of 11 stocks in the Entertainment - Radio industry. Other popular stocks in the software-business group are Spotify Technology (SPOT), Saga Communications, Inc. (SGA), and Liberty Media Corporation (LSXMA).

While SPOT gained 74.9% year-to-date, SGA and LSXMA lost 35.7% and 28.3%, respectively, over this period. 

SIRI’s recent developments might give it an edge over its peers. Its healthy relationship with automakers is expected to boost the adoption of its 360L service. The company announced its extension and expansion with General Motors (GM) until 2027. Moreover, on October 14th, the company announced that its audio entertainment service is now a standard feature in all BMW models sold in the United States, beginning with the models that will be sold in 2021.

Industry Rank: D

The Entertainment – Radio industry is ranked #88 out of the 123 industries in the StockNews.com universe. With the growth of different digital platforms, the entertainment-radio industry has taken a backseat. Also, popular music streaming platforms such as iTunes, Spotify and YouTube Music have replaced radios, leading to a decline in the overall performance of the industry.

Overall POWR Rating: C (Neutral)

SIRI is rated “Neutral” due to its questionable future outlook and stiff competition from its rivals, despite having positives such as healthy relationships with the automakers, as determined by the four components of its overall POWR Rating.

Bottom Line

SIRI’s short term bearishness and stiff competition from streaming platforms is expected to be a barrier for the stock’s recovery. Given its weak growth momentum, the stock is not an ideal investment right now.

SIRI’s EPS is expected to grow at 17.4% next year and at a rate of 16% per annum in the next five years. However, analysts expect SIRI’s revenue to decline 3.6% in the current year. So, investors should perhaps wait for a lower price to enter the stock.

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SIRI shares were trading at $5.84 per share on Friday afternoon, down $0.00 (0.00%). Year-to-date, SIRI has declined -17.80%, versus a 10.02% rise in the benchmark S&P 500 index during the same period.

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.

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