Sirius XM Holdings Inc. (NASDAQ:SIRI) and Sinclair Broadcast Group, Inc. (NASDAQ:SBGI) are the two most active stocks in the Broadcasting – Radio industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect SIRI to grow earnings at a 19.38% annual rate over the next 5 years. Comparatively, SBGI is expected to grow at a 2.00% annual rate. All else equal, SIRI’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this. Sirius XM Holdings Inc. (SIRI) has an EBITDA margin of 34.46%, compared to an EBITDA margin of 22.84% for Sinclair Broadcast Group, Inc. (SBGI). This suggests that SIRI underlying business is more profitable. SIRI’s ROI is 21.00% while SBGI has a ROI of 9.30%. The interpretation is that SIRI’s business generates a higher return on investment than SBGI’s.
The value of a stock is simply the present value of its future free cash flows. SIRI’s free cash flow (“FCF”) per share for the trailing twelve months was +0.08. Comparatively, SBGI’s free cash flow per share was +0.39. On a percent-of-sales basis, SIRI’s free cash flow was 7.34% while SBGI converted 1.46% of its revenues into cash flow. This means that, for a given level of sales, SIRI is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. SIRI has a current ratio of 0.20 compared to 2.60 for SBGI. This means that SBGI can more easily cover its most immediate liabilities over the next twelve months.
SIRI trades at a forward P/E of 25.53, and a P/S of 4.84, compared to a forward P/E of 9.51, a P/B of 2.63, and a P/S of 1.08 for SBGI. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. SIRI is currently priced at a -3.17% to its one-year price target of $5.67. Comparatively, SBGI is -40.3% relative to its price target of $49.75. This suggests that SBGI is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.40 for SIRI and 1.60 for SBGI, which implies that analysts are more bullish on the outlook for SIRI.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. SIRI has a beta of 1.11 and SBGI’s beta is 1.86. SIRI’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. SIRI has a short ratio of 11.97 compared to a short interest of 5.22 for SBGI. This implies that the market is currently less bearish on the outlook for SBGI.
Sinclair Broadcast Group, Inc. (NASDAQ:SBGI) beats Sirius XM Holdings Inc. (NASDAQ:SIRI) on a total of 7 of the 12 factors compared between the two stocks. SBGI is growing fastly and higher liquidity. In terms of valuation, SBGI is the cheaper of the two stocks on an earnings and sales basis, SBGI is more undervalued relative to its price target. Finally, SBGI has better sentiment signals based on short interest.