Sirius XM Holdings Inc (NASDAQ:SIRI) closed yesterday at $6.47, which left some investors asking whether the high earnings potential can still be justified at this price. Below I will be talking through a basic metric which will help answer this question. Check out our latest analysis for Sirius XM Holdings
What can we expect from Sirius XM Holdings in the future?If you are bullish about Sirius XM Holdings’s growth potential then you are certainly not alone. The consensus forecast from 15 analysts is extremely bullish with earnings forecasted to rise significantly from today’s level of $0.14 to $0.333 over the next three years. This results in an annual growth rate of 16.04%, on average, which signals a market-beating outlook in the upcoming years.
Can SIRI’s share price be justified by its earnings growth?
SIRI is trading at quite a high price-to-earnings (PE) ratio of 46.31x. This tells us that Sirius XM Holdings is overvalued compared to the US market average ratio of 18.68x , and overvalued based on current earnings compared to the media industry average of 16.52x .
We already know that SIRI appears to be overvalued when compared to its industry average. However, seeing as Sirius XM Holdings is perceived as a high-growth stock, we must also account for its earnings growth, which is captured in the PEG ratio. A PE ratio of 46.31x and expected year-on-year earnings growth of 16.04% give Sirius XM Holdings a quite high PEG ratio of 2.89x. This means that, when we account for Sirius XM Holdings’s growth, the stock can be viewed as overvalued , based on its fundamentals.
What this means for you:
SIRI’s current overvaluation could signal a potential selling opportunity to reduce your exposure to the stock, or it you’re a potential investor, now may not be the right time to buy. However, basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PEG ratio is very one-dimensional. If you have not done so already, I urge you to complete your research by taking a look at the following:
- Financial Health: Is SIRI’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Past Track Record: Has SIRI been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of SIRI’s historicals for more clarity.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.