Sirius XM Holdings Inc. (NASDAQ:SIRI) shares are up more than 29.33% this year and recently increased 0.26% or $0.02 to settle at $5.76. Pandora Media, Inc. (NYSE:P), on the other hand, is down -42.56% year to date as of 10/20/2017. It currently trades at $7.49 and has returned -6.02% during the past week.
Sirius XM Holdings Inc. (NASDAQ:SIRI) and Pandora Media, Inc. (NYSE:P) are the two most active stocks in the Broadcasting – Radio industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect SIRI to grow earnings at a 17.83% annual rate over the next 5 years. Comparatively, P is expected to grow at a 24.15% annual rate. All else equal, P’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. Sirius XM Holdings Inc. (SIRI) has an EBITDA margin of 34.46%. This suggests that SIRI underlying business is more profitable SIRI’s ROI is 21.00% while P has a ROI of -35.50%. The interpretation is that SIRI’s business generates a higher return on investment than P’s.
If there’s one thing investors care more about than earnings, it’s cash flow. SIRI’s free cash flow (“FCF”) per share for the trailing twelve months was +0.08. Comparatively, P’s free cash flow per share was -0.47. On a percent-of-sales basis, SIRI’s free cash flow was 7.34% while P converted -8.23% 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
Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. SIRI has a current ratio of 0.20 compared to 3.00 for P. This means that P can more easily cover its most immediate liabilities over the next twelve months.
SIRI trades at a forward P/E of 26.89, and a P/S of 5.07, compared to a P/B of 8.42, and a P/S of 1.28 for P. SIRI is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S ratio. 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
Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. SIRI is currently priced at a 0.7% to its one-year price target of 5.72. Comparatively, P is -31.03% relative to its price target of 10.86. This suggests that P 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 2.40 for P, which implies that analysts are equally bullish on their outlook for the two stocks.
Risk and Volatility
No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. SIRI has a beta of 1.14 and P’s beta is -0.14. P’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. SIRI has a short ratio of 13.65 compared to a short interest of 11.18 for P. This implies that the market is currently less bearish on the outlook for P.
Pandora Media, Inc. (NYSE:P) beats Sirius XM Holdings Inc. (NASDAQ:SIRI) on a total of 7 of the 14 factors compared between the two stocks. P is more profitable and higher liquidity. In terms of valuation, P is the cheaper of the two stocks on an earnings and sales basis, P is more undervalued relative to its price target. Finally, P has better sentiment signals based on short interest.