Immense Potential, Siriusly

09/03/2004 12:00 am EST


Jamie Dlugosch

Editor, The Rational Investor

"It is incredibly difficult to value a company that experiencing explosive growth while operating in a market that is potentially immense," says value and growth investor Jamie Dlugosch, as he looks at the long-term potential for satellite radio.

"Sirius Satellite Radio (SIRI NASDAQ) is the second largest satellite radio provider in the country, after XM Satellite. This is an aggressive growth story. As such, current trade and valuation metrics offer little insight into the future of the stock. The company participates in an industry with vast potential. Indeed, the company has a product that could increase revenue and profits by numbers at rates that are difficult to comprehend. Yet, the company has seen its stock languish over the last several months. In other words, momentum buying has yet to take hold at SIRI and that alone makes my current investment compelling.

"Satellite Radio is a burgeoning new market, and the companies in this sector are making a bid to change the auto radio market completely. On a current financial basis, the stock is trading for a rich premium. With programming and market acceptance gaining strength, I expect SIRI to explode in value over the coming years. Revenue is expected to grow from $67 million to $194 million from 2004 to 2005. Over the last few months, SIRI has traded lower as its main competitor, XM Satellite, has seized the spotlight. However, that may change as we head towards football season. SIRI is expected to get a significant enrollment pop from its coverage of the upcoming NFL season and other major sports as well. The male sport-loving consumer dominates the auto market and I expect SIRI to gain market share as its content is recognized by the customer as a premium item.

"It may take a year or two or even three, but I am willing to be patient on SIRI. In my opinion, the potential appreciation in its stock as this story develops over tine could be immense. On the flip side, we caution that the company still faces many hurdles on its way to profitability and there is a risk that the future fails to materialize as expected. In that way an investment in SIRI is most definitely a risky proposition. I fully understand that risk and factor such risk into my investment decision and overall portfolio management. My long-term target for SIRI is $10 per share."

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