Give Sirius XM Some Time

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"Sirius XM is cheap," a simpleton will say. "Just look at the share price."

It's true. Unsophisticated investors may approach Sirius XM Radio (NAS: SIRI) as a ground floor opportunity based solely on yesterday's $1.68 close, largely unaware that there are 6.5 billion fully diluted shares out there. At a market cap of $11 billion, the satellite radio company is certainly not an entry-level opportunity. It's already more valuable than several of the leading terrestrial radio companies combined.

However, this doesn't mean that Sirius XM is expensive. Satellite radio may have been an unprofitable niche until early last year, but profitability at the satellite radio giant is scaling quickly.

You may already know that analysts see Sirius XM earning $0.07 a share this year and $0.08 a share come 2012. Some may even know that Wall Street's profit target for 2013 checks in at $0.12 a share, 50% higher than next year's bottom-line results. Well, now that we're just a few weeks away from 2012, the market's starting to look a little further out. According to Zacks Investment Research, there's a lone analyst eyeing net income of $0.18 a share come 2014.

In other words, Sirius XM may be trading for 21 times forward earnings and 14 times the following year's projected profitability, but it's now trading for just nine times Wall Street's 2014 estimate.

Is it dangerous to go out that far? You bet. Faraway targets will bounce around quite a bit, and Sirius XM may ultimately earn a lot more -- or a lot less -- than what's being modeled by the pros right now.

Time can still be kind. Pandora (NYS: P) may be losing money now, but analysts see a profit of $0.58 a share in its fiscal year ending in January of 2015. If Pandora can be making some serious coin in digital streaming at that point, why not Sirius XM? There's no reason why this must remain exclusively a satellite radio growth story.

Analysts see Ford (NYS: F) earning a bit more -- and in General Motors' (NYS: GM) case, a lot more -- in 2014 than it is right now. Even the seemingly risky electric car pioneer Tesla Motors (NAS: TSLA) is expected to turn the corner of profitability by 2013 and post huge earnings of $2.34 a share come 2014.

If automakers are selling more cars in a few years, and there's money to be made in premium streaming, how can Sirius XM not be in a much better place in three years than it is right now?

Time is sometimes the only difference between a naive comment and a reasonable one.

"Sirius XM is cheap," I say. "Just look at the share price."

If you want to see how Sirius XM stands up to the stream teams addSIRIUS XM Radioto My Watchlist.

At the time this article was published The Motley Fool owns shares of Ford Motor. Motley Fool newsletter services have recommended buying shares of Ford Motor and General Motors. 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.Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story, except for Ford. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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