Can Sirius XM Radio Continue to Rise?

With shares of Sirius XM Radio (NASDAQ:SIRI) trading around $4, is SIRI an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Sirius XM Radio broadcasts its music, sports, entertainment, comedy, talk, news, traffic, and weather channels in the United States on a subscription fee basis through its two satellite radio systems. Subscribers can also receive music and other channels over the Internet, including through applications for mobile devices. Audio entertainment has always pleased consumers and is a medium that is growing in popularity. Sirius XM Radio is looking to expand its audio entertainment channels to every audio medium possible, which will surely translate to rising profits.

Sirius XM Radio reported third-quarter earnings on Thursday morning after the opening bell, giving results and guidance that missed analyst expectations. Sirius’s income was $62.89 million, down from $74.5 million a year ago, and although revenue grew 11 percent to $961.5 million, that figure fell short of estimates by over $10 million. Revenue per subscriber was also up to $12.29 from $12.14 last year, but again missed forecasts. Sirius said it expects to make $4 billion in revenue in 2014, a figure below Wall Street expectations.

T = Technicals on the Stock Chart Are Strong

Sirius XM Radio stock has established higher highs and higher lows in the last few years. The stock is currently trading slightly below highs for the year and looks set to continue. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Sirius XM Radio is trading above its rising key averages, which signal neutral to bullish price action in the near-term.

SIRI

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Sirius XM Radio options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Sirius XM Radio Options

31.54%

0%

0%

What does this mean? This means that investors or traders are buying a very small amount of call and put options contracts as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

November Options

Flat

Average

December Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very small amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Sirius XM Radio’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Sirius XM Radio look like and more importantly, how did the markets like these numbers?

2013 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

0.00%

-95.83%

0.00%

104.80%

Revenue Growth (Y-O-Y)

11.00%

12.23%

11.52%

13.87%

Earnings Reaction

-3.82%*

2.71%

5.86%

1.26%

Sirius XM Radio has seen mixed earnings and rising revenue figures over the last four quarters. From these numbers, the markets have had conflicting feelings about Sirius XM Radio’s recent earnings announcements.

* As of this writing

P = Weak Relative Performance Versus Peers and Sector

How has Sirius XM Radio stock done relative to its peers, Pandora (NYSE:P), CBS (NYSE:CBS), Cumulus Media (NASDAQ:CMLS), and sector?

Sirius XM Radio

Pandora

CBS

Cumulus Media

Sector

Year-to-Date Return

36.51%

191.10%

56.86%

115.00%

98.76%

Sirius XM Radio has been a poor relative performer, year-to-date.

Conclusion

Sirius XM Radio provides audio entertainment and information via subscription services to a growing listener base. A recent earnings release has the markets expecting more from the company. The stock has been trending higher in recent years and is currently near highs for the year. Over the last four quarters, earnings have been mixed while revenues have been rising which has produced conflicting feelings among investors. Relative to its peers and sector, Sirius XM Radio has been a weak year-to-date performer. Look for Sirius XM Radio to OUTPERFORM.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

More from The Cheat Sheet