Tag: Subdued

It’s not a stretch to say that Sirius XM Holdings Inc.’s (NASDAQ:SIRI) price-to-sales (or “P/S”) ratio of 0.9x right now seems quite “middle-of-the-road” for companies in the Media industry in the United States, where the median P/S ratio is around 0.8x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Sirius XM Holdings

What Does Sirius XM Holdings’ P/S Mean For Shareholders?

Sirius XM Holdings hasn’t been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. You’d really hope so, otherwise you’re paying a relatively elevated price for a company with this sort of growth profile.

If you’d like to see what analysts are forecasting going forward, you should check out our free report on Sirius XM Holdings.

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, Sirius XM Holdings would need to produce growth that’s similar to the industry.

In reviewing the last year of financials, we were disheartened to see the company’s revenues fell to the tune of 1.7%. At least revenue has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Therefore, it’s fair to say that revenue growth has been inconsistent recently for the company.

Shifting to the future, estimates from the analysts covering the company suggest revenue growth is heading into negative territory, declining 0.2% each year over the next three years. That’s not great when the rest of the industry is expected to grow by 5.2% per annum.

With this in consideration, we think it doesn’t make sense that Sirius XM Holdings’ P/S is closely matching its industry peers. Apparently many investors in the company reject the analyst cohort’s pessimism and aren’t willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh on the share price eventually.

What Does Sirius XM Holdings’ P/S Mean For Investors?

We’d say the price-to-sales ratio’s power isn’t primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

While Sirius XM Holdings’ P/S isn’t anything out of the ordinary for companies in the industry, we didn’t expect it given forecasts of revenue decline. When we see a gloomy outlook like this, our immediate thoughts are that the share price is at risk of declining, negatively impacting P/S. If the declining revenues were to materialize in the form of a declining share price, shareholders will be feeling the pinch.

You should always think about risks. Case in point, we’ve spotted 2 warning signs for Sirius XM Holdings you should be aware of, and 1 of them is a bit concerning.

If strong companies turning a profit tickle your fancy, then you’ll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.