Sirius XM Radio shakes off long slumber

Is this once-hot stock ready to take off again? I think so.

By Jamie Dlugosch Feb 2, 2010 6:12PM

Many of you know I've been extremely bullish on Sirius XM Radio (SIRI) for quite some time, through good times and bad.


I think the bad is over.


My passion for the company's future has never wavered, even during a brush with death that nearly destroyed shareholder equity.


Starting with a buy recommendation in 2003, when shares were worth a mere $1 per share, I rode the stock to its peak of nearly $10 per share in late 2004 and early 2005. During the ride, I suggested that shares would reach my target of $20 per share as the company exploited huge growth opportunities.


Even as shares plunged over the three years beginning in 2006, I believed in the company. Time was all this company needed to win out in its death battle with XM Radio.

When the companies announced a merger, I felt a turning point was near. Unfortunately, the government took its sweet time approving the deal and shares continued to struggle. Then the company ran headfirst into a deep economic recession. Given the amount of debt on the balance sheet, SIRI came perilously close to bankruptcy.


Thankfully the company was given a lifeline in early 2009. That capital kept the debt holders at bay so that SIRI could assert its new-found monopolistic muscle.


The low for SIRI just prior to it securing new financing was 10 cents per share. The price has been climbing slowly ever since.


I recommended the company in my Penny Stock Winners newsletter at 44 cents per share. For those who have not noticed, SIRI has doubled in value from that point to its current price of 88 cents.


There are more gains to be had. Make no mistake, satellite radio is here to stay. The growth potential of the company remains intact for a company that now operates free and clear of competition.


The market has yet to price the fact that SIRI is a monopoly. With the company now forming a strong base of positive cash flow, SIRI can exert itself not available to companies that face stiff competition.


Sure, there's device competition from iPods and such, but these devices are companion products, not true competition. Nope, the only competition for Sirius is from terrestrial radio, and terrestrial radio is inferior to what Sirius can provide to its customers.


Recently the company announced that it had gained 257,000 net new subscribers in the fourth quarter while expecting to report more than $100 million in free cash flow. Its loyal customers are willing to pay for quality content.


At the same time SIRI no longer needs to compete with XM in paying for content. It is the best of both worlds for investors: revenue increases and costs decrease.


There are more good times for SIRI ahead given the huge growth potential of the radio market. For now, the company has approximately 19 million customers. That is far less than the number of autos out there.


I still love SIRI, and I believe time will prove me right on this one. (Get 5 reasons to buy Sirius here)


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