Is Sirius XM Radio Inc (SIRI) Too Expensive?

What’s more, the company has recently announced a $2 billion stock repurchase program. This would significantly impact the float by roughly 10%, of 600 million shares. This reduction of shares coupled with the (lowball) FCF projection of $900 million makes for a very compelling buy on a per-share basis. For that matter, I think it’s safe for investors to assume that Sirius will post FCF in excess of $1 billion for fiscal 2013, given the improved rate in vehicle sales. This would represent a yet modest 40% year-over-year growth, implying that management is underprojecting by (at least) 13%.

While the argument still stands that Sirius rarely trades on fundamentals, the stock also has a history of not trading on realistic guidance. Today, if the stock was in fact trading on guidance, it deserves a 10% premium. And the company’s recent earnings justifies this level of optimism. Sirius is outperforming all rivals. But it’s not because the likes of Pandora Media Inc (NYSE:P) is chopped liver. The company is doing well in its own right. And chances are, this will continue. Instead, it speaks to an uptick in the overall audio consumption market.

Which is why Apple Inc. (NASDAQ:AAPL) wants a piece of it. I do wonder, then, how much longer Sirius’ strong performance will continue in this capacity. We’ve seen from Apple’s own recent decline that all good things come to an end. “Ending” in this case is relative, and doesn’t imply a sudden irrelevance. Rather, it’s the difference between “dominant” and just “leading.” Is Sirius still undervalued as just a leader?

Today, the company’s growing subscribers at an 18% rate. What if that were to drop to, say, 12%? And would revenue growth in the high single digits support a bullish case? Plus, although total paid subscriber base rose to a record-high 23.9 million, there was a minor red flag. Despite the strong growth in auto sales, during which SAAR climbed to roughly 15 million, Sirius actually posted 1.5% less subscribers than in it did in fourth quarter 2011.

Clearly, Sirius needs another revenue stream beyond autos. The 45% conversion rate is helping with cash flow and self-pay subs, but it won’t be enough in the long term. It needs to rise by 6% or Sirius will have to supplement revenue with another source. Plus, given Apple’s rumored interest in the streaming market, there’s urgency for Sirius to figure it out. Granted, Apple can’t compete with Sirius’ content,and any impact will be negligible. But there will be some impact. For now, these shares are still attractive, even if guidance is not.

The article Is Sirius XM Too Expensive? originally appeared on Fool.com and is written by Richard Saintvilus.

Fool contributor Richard Saintvilus owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.