4 Reasons Sirius XM Is Cheap

These have been tough days for Sirius XM Radio (NAS: SIRI) investors. When shares of the satellite-radio provider fell below $2 last month -- the first time that had happened since early January -- I figured it wouldn't last.

Well, four weeks later, I have to concede defeat on that call. Sirius XM hasn't traded for more than $2 a share since May 23, and it spent all of this past week buried below $1.90.

The good news is that there are a few catalysts that can shake Sirius XM out of its dreary trading range, moving the stock back up above the $2 mark. Let's explore a few.

1. The second-quarter report is now just weeks away
Sirius XM has historically posted its second-quarter financials during the first week of August. It should be a solid report.

Revenue growth should continue to accelerate since January's 12% rate increase, as more subscribers work their way into the higher monthly subscription fees. It's not a coincidence that analysts see revenue for the second quarter rising 11%, followed by an 11.5% uptick in the third quarter, and 11.7% for all of 2012.

Retention rates were surprisingly strong during the first quarter, and healthy auto sales and encouraging signs on the economic front bode well for another solid report.

2. The Liberty Media saga is coming to a close
There was probably a fair deal of speculative sizzle to Sirius XM's stock when it seemed as if Liberty Media's (NAS: LMCA) would have to pay a juicy premium for control of the company. Well, we now see how easily it's been to grow its effective stake to 46.2% without moving the stock.

Liberty's push to achieve de facto control is now easier to stomach. At the very least, a premium is no longer priced into the stock.

3. Streaming isn't the end of satellite radio
There always seems to be some new streaming star on the horizon. Pandora Media (NYS: P) is now serving up more than a billion hours of Web-served music a month, and its current slate of 51.9 million active listeners is 52% ahead of where the fast-growing service was a year earlier. Spotify has also taken the country by storm since last summer's arrival.

Now Songza is the new proverbial Sirius XM killer. It's the top music app across all Apple (NAS: AAPL) devices right now, and that means folks are using Songza on their iPhones and 4G iPads when they could very well be tuning into satellite radio instead.

The streaming platform touts that it's "100% free" as a jab to Sirius XM, before taking a shot at the ad-shackled free version of Pandora: "No audio advertisements and no monthly listening limit."

I don't know. It seems as if Songza is a bigger threat to Pandora than it is to Sirius XM. Either way, my point is that Sirius XM has been able to grow -- increasing both its subscriber count past 22 million and its monthly rate to $14.49 a month -- against the backdrop of healthy growth by Pandora and a revolving door of hot streaming apps of the week.

4. Sirius XM is cheap
With more than 6.5 billion shares outstanding after accounting for Liberty Media's 40% preferred share stake, it's easy to wonder whether Sirius XM isn't as cheap as it low share price suggests. Sirius XM closed at the price of a fast-food burger, but we're looking at a market cap north of $12 billion.

Sirius XM is worth it, though. Sure, a price-to sales multiple just shy of 4 is high for the low-margin radio industry, but keep in mind that Sirius XM's scalable model, proprietary content, and shrinking programming costs make this a unique situation among broadcasters. This isn't your cable provider jogging to keep pace with growing network fees. Sirius XM controls the content, and it's been doing a masterful job of keeping it inexpensive for itself yet valuable for listeners.

On the earnings front, Sirius XM is just starting to break out. It may not seem cheap at roughly 25 times this year's earnings, but we're also talking about a 2015 projected earnings multiple in the single digits.

In time, Sirius XM will prove itself to be the bargain that it has become.

Running of the bulls
I remain bullish on Sirius XM's future. It should come as no surprise that I'm promoting the CAPScall initiative for accountability by reiterating my bullish call on Sirius XM for Motley Fool CAPS.

XM Satellite Radio was a Rule Breakers recommendation before the Sirius XM merger. It's now gone from the scorecard, but if you want to discover the newsletter service's next Rule-Breaking multibagger, a free report reveals all.

At the time thisarticle was published The Fool owns shares of Apple.Motley Fool newsletter serviceshave recommended buying shares of Apple and creating a bull call spread position in Apple. The Motley Fool has adisclosure policy. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.Longtime Fool contributorRick Munarrizcalls them as he sees them. He owns shares of Liberty Media and is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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