I bought about $5,000 worth of Sirius (satellite radio) stock. The price was about $3.25 or so.
The price then slowly fell as the FCC gave them the run around about merging with XM. Last Friday I bought $750 more of Sirius at $0.377. At the price, the company is worth only $1.2 Billion.
Here’s why the price is so low.
1. FCC took so long to approve the merger. Now Sirius has a huge loan repayment coming up.
2. Conversion costs, nobody knows how much it’s going to cost to convert all the old receivers to the new ones.
3. Capital. Satellite radio has never been profitable. How are they going to get more money to pay their bills.
4. Less cars are getting bought so that means less units being bought.
5. Too many shares were issued. At best, the company should be worth 2-3 times what it currently is.
DirecTV and Dish Network have a total market cap of $30.1 billion. If Satellite radio has the same percentage of the market, their market cap roughly 40% that of the $30.1 billion (big assumption but also somewhat reasonable). This could make the satellite radio market around $12 billion or roughly 10 times what it currently is.
If Sirius can squeek out a 1 cent profit in any quarter their price will triple. Unfortunately, this might not happen until 2010.