Pandora Media, Inc. (NYSE:P) shares are down more than -6.85% this year and recently decreased -1.32% or -$0.06 to settle at $4.49. Sirius XM Holdings Inc. (NASDAQ:SIRI), on the other hand, is up 2.05% year to date as of 01/17/2018. It currently trades at $5.47 and has returned -1.53% during the past week.
Pandora Media, Inc. (NYSE:P) and Sirius XM Holdings Inc. (NASDAQ:SIRI) 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 P to grow earnings at a 21.55% annual rate over the next 5 years. Comparatively, SIRI is expected to grow at a 18.53% annual rate. All else equal, P’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. EBITDA margin of 35.59% for Sirius XM Holdings Inc. (SIRI). P’s ROI is -35.50% while SIRI has a ROI of 21.00%. The interpretation is that SIRI’s business generates a higher return on investment than P’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. P’s free cash flow (“FCF”) per share for the trailing twelve months was -0.35. Comparatively, SIRI’s free cash flow per share was +0.08. On a percent-of-sales basis, P’s free cash flow was -6.28% while SIRI converted 7.34% 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 are important because they reveal the financial health of a company. P has a current ratio of 4.20 compared to 0.20 for SIRI. This means that P can more easily cover its most immediate liabilities over the next twelve months.
P trades at a P/B of 6.51, and a P/S of 0.75, compared to a forward P/E of 26.43, and a P/S of 4.70 for SIRI. 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 isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. P is currently priced at a -46.67% to its one-year price target of 8.42. Comparatively, SIRI is -6.01% relative to its price target of 5.82. 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 2.50 for P and 2.40 for SIRI, which implies that analysts are more bullish on the outlook for P.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. P has a beta of -0.51 and SIRI’s beta is 1.09. P’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment.P has a short ratio of 5.73 compared to a short interest of 11.54 for SIRI. This implies that the market is currently less bearish on the outlook for P.
Sirius XM Holdings Inc. (NASDAQ:SIRI) beats Pandora Media, Inc. (NYSE:P) on a total of 7 of the 14 factors compared between the two stocks. SIRI is growing fastly, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. Finally, PBI has better sentiment signals based on short interest.