Did Sirius XM's Stock Grow Too Fast?

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Few (if any) companies can ever be called a sure thing. No matter how great a company's promise, stratospheric P/E ratios and lofty growth projections can't continue forever. Sirius XM (NAS: SIRI) stockholders have had a pretty wild ride over the past three years, but is there enough in the tank to sustain the company's upward momentum? Let's take a look at how its stock rise matches up to some of its fundamentals.

Graphing the growth
Sirius XM has been a great comeback story, bouncing back from a major debt crisis to reclaim profitability heading into 2012. For some of the worst stretches of Sirius' doldrums, it sported a stock price so low you couldn't buy a gumball with it. The company now looks like the perfect bet for those who bought in at those prices, as it may head for $3 before too long.

A company should be improving its profitability along with its revenue for investors to take it seriously. It's one thing to sacrifice profit for explosive growth, hoping to turn on the afterburners later. Sirius has now proved that it can make satellite radio a profitable market, but with a P/E at 53.5, it's hardly cheap. Even its forward P/E of 30 seems a little rich, and much can happen on the road to fair value. Based on its progress post-crash, it looks like the market's enthusiasm might be getting a bit ahead of itself.

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Sources: Yahoo! Finance and Morningstar.

Sources: Yahoo! Finance and Morningstar.

But what does it mean?
This is no ordinary bubble. Sirius' rise came on the wave of a broader auto industry rebound that's seen profits return and financial obligations stabilize. Over a similar time frame, former fellow penny stockFord (NYS: F) has sported similar returns, having risen about 450% since the depths of 2009. Ford's debt to equity is more than three times worse than Sirius XM's, though Ford has been making more aggressive moves to slash its debt to equity. That's enabled Ford to reinstate its dividend, something Sirius has never offered.

Despite being the only satellite-radio player, Sirius is far from alone in the war for your ears. Pandora Media (NYS: P) , despite two profitable quarters, still appears a long way off in terms of earnings potential. That hasn't stopped it from gaining more subscribers than Sirius, and its freemium model poses real challenges to Sirius' effort to capture the auto market, despite their stylistic and programming differences.

Foolish final thoughts
If you're a Sirius XM bull, you should know that there's no such thing as a perfect stock. With so much reliance on a resurgent auto industry, Sirius' flight higher could run into turbulence if eurozone problems slam into the global economy. I wouldn't expect to see its shares lining the bottom of the barrel as they once did, but neither does it look like today's buyers will see anything like 2009's opportunities.

Add Sirius XM to your Watchlist for all the news you can handle on the company's every move. If you're on the hunt for the next explosive stock, take a look at The Motley Fool's brand new free report on a rule-breaking multibagger that's only just getting started. It's been picked by Fool founder David Gardner and has already paid off for our subscribers, but we think it has lots of room to grow. Find out the secret of this company and claim your free copy of this report while it lasts.

At the time this article was published Fool contributorAlex Planesholds no financial position in any company mentioned here. Add him onGoogle+or follow him onTwitterfor more news and insights. The Motley Fool owns shares of Ford.Motley Fool newsletter serviceshave recommended buying shares of and creating a synthetic long position in Ford Motor. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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