The Sirius Story - Worth your Money?

Matthew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Everything and everyone has a story.  Although it may be true that some stories are inarguably more grand and exciting than others, no thing or person is without its own unique story.  Corporations are no exception to this rule.  And as an accountant, I find it to be true and exciting that a company’s financials can tell us a small story of the company’s greater story. 

But, as is the case with any multifaceted story out there, drawing conclusions based on any one of the smaller stories to the exclusion of the bigger picture would be idiotic.  In the same way, to focus on the story of a company’s historical financial performance to the exclusion of stories of that company’s origin, mission, strategy, competitors, etc. would be unwise.

For this post, I want to highlight a few plots within the financial narratives of Sirius XM Radio (NASDAQ: SIRI) and its competitors, Pandora Media (NYSE: P) and Cumulus Media (NASDAQ: CMLS).  Specifically, we'll take a look at revenue growth and gross margins to see how successful the companies have been at not only generating revenue, but also at managing the corresponding costs to do so.  We'll also evaluate each company's debt to equity ratio to see how financially stable they are, and their return on equity to see if they’re adding value to shareholders.  Lastly, we’ll look at their price to earnings and price to free cash flow ratios to see how well they're priced.

<table> <tbody> <tr> <td> <p> </p> </td> <td> <p><strong>SIRI</strong></p> </td> <td> <p><strong>P</strong></p> </td> <td> <p><strong>CMLS</strong></p> </td> <td> <p><strong>INDUSTRY</strong></p> </td> </tr> <tr> <td> <p>Rev. Growth (5 Yr. Avg.)*</p> </td> <td> <p>29.78%</p> </td> <td> <p>N/A</p> </td> <td> <p>13.70%</p> </td> <td> <p>-4.82%</p> </td> </tr> <tr> <td> <p>Gross Margin (5 Yr. Avg.)*</p> </td> <td> <p>56.80%</p> </td> <td> <p>N/A</p> </td> <td> <p>37.30%</p> </td> <td> <p>48.50%</p> </td> </tr> <tr> <td> <p>Debt to Equity (MRQ)*</p> </td> <td> <p>0.63</p> </td> <td> <p>0.00</p> </td> <td> <p>10.04</p> </td> <td> <p>6.17</p> </td> </tr> <tr> <td> <p>Return on Equity (TTM)**</p> </td> <td> <p>151.61%</p> </td> <td> <p>-33.41%</p> </td> <td> <p>97.13%</p> </td> <td> <p>N/A</p> </td> </tr> <tr> <td> <p>Price/Earnings (TTM)*</p> </td> <td> <p>4.90</p> </td> <td> <p>N/A</p> </td> <td> <p>N/A</p> </td> <td> <p>118.20</p> </td> </tr> <tr> <td> <p>Price/Free Cash Flow (TTM)*</p> </td> <td> <p>26.40</p> </td> <td> <p>-110.70</p> </td> <td> <p>-0.20</p> </td> <td> <p>30.00</p> </td> </tr> </tbody> </table>

*Data obtained from   **Data obtained from

The Sirius Story

As you can see from the above chart, the Sirius story (or at least the financial performance chapter) appears to be a good one.  Sirius managed to achieve an impressive five-year average revenue growth of 29.78%, and did so with a pretty decent five-year average gross margin of 56.80%.  Additionally, Sirius is in great financial condition, with a debt to equity ratio of only 0.63.  It’s also worth mentioning that Sirius appears to be in the process of removing its long-term debt altogether, as it has steadily decreased its long-term debt over the past four years by roughly 10%. 

The best part, though, of the Sirius story is its return on equity.  It has generated a staggering trailing twelve-month return on equity of 151.61% (that sort of plot would make just about any company’s financial story sound great!).  Given Sirius’ success in these areas, it’s almost shocking how cheaply priced the stock is at a P/E ratio of 4.90.  And though I would typically consider a P/FCF of 26.40 a little steep, it seems to me Sirius could be worth it, especially considering the P/FCF of its competitors and industry.

A Worthy Story

When comparing the same ratios to those of Pandora, CMLS, and the industry in general, the Sirius financial story appears to be the better narrative.  As I said previously, the financial stories of a company are only one among many that makes up their greater story.  But, if the remaining stories within the Sirius narrative are as positive and exciting as its financial story, you should consider making room on your investment bookshelf.

Foolish Bottom Line

Despite being one of the market's biggest winners since bottoming out three years ago, there is still some healthy upside to be had if things go right for Sirius XM -- and plenty of room to fall if things don't. Read all about Sirius in The Motley Fool’s brand new premium report. To get started, just click here now.

mattmcmichen has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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