SiriusXM completed its restructuring last week after it finally merged with Liberty Media’s SiriusXM tracker entity. The new audio entertainment company has a market cap of $8.3B and is expected to make $1.5B in free cash flow in 2025. This translates into a P/FCF ratio of just 5.5. This is cheap even after we factor in the company’s rather high debt load and stagnant revenue growth rates.
Based on valuation alone, SiriusXM looks like a stock to buy. On the other hand, cheap stocks can stay cheap for a very long time. So let’s first examine the chart below, in order to see if we can really expect a re-rating to the upside anytime soon.
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SiriusXM was so extremely overvalued during the Dot-com bubble a quarter a century ago that anyone who bought in 1999-2000 must’ve already given up on ever breaking even. Those lucky or smart enough to get in near the 2009 lows, on the other hand, are still sitting on big gains even after the tumble the stock suffered over the past six years.
From an Elliott Wave point of view, the recovery from less than a dollar in 2009 to $77 in mid-2018 is a five-wave impulse. We’ve marked the pattern (1)-(2)-(3)-(4)-(5), where the five sub-waves of wave (3) are also visible and wave (4) is a running flat correction. Wave (5) was the extended one in this impulse, but that didn’t prevent it from being fully retraced by the corrective phase of the cycle.
The correction that began in June, 2018, seems to be on the verge of completion. It can be seen as an expanding flat, labeled (a)-(b)-(c). The three-wave structures of waves (a) and (b) are easily recognizable, while wave (c) looks like an ending diagonal, whose wave 5 is now searching for a bottom. If this count is correct, the Elliott Wave cycle from the 2009 low is almost complete and a major bullish reversal can soon be expected. This, in addition to the dirt-cheap valuation, is the reason why we intend to keep SiriusXM in the EWM Interactive Stock Portfolio.
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