Whether terrestrial, satellite or streaming, shares in radio companies are on fire, putting up market-crushing gains during the past year.
They’re also, of course, quite risky. Volatility, high short interest or small market caps mean investors considering an allocation to any of these names better have guts of steel.
It’s also a sector with a dearth of opportunities. Except for Sirius, there aren’t any stocks with really large market values. Dominant companies in the industry — such as CBS Radio, Citadel and Clear Channel — are privately held or are subsidiaries of broader companies.
Regardless, there are opportunities in the sector, so we took a look at the three biggest publicly traded names in radio:
Anyone who showed a little faith at the depths of the selloff is looking pretty smart now. Shares are up 128% in the past year, vs. a 17% gain for the S&P 500. And there could be more momentum ahead: The stock’s at all-time highs and well above its 50- and 200-day moving averages.
But don’t be surprised if the bottom falls out. The forward price-to-earnings ratio of 71 is pretty rich — even for a company with a compound annual growth forecast of 45% a year for the next five years. Oh, and about 25% of the float is sold short.
Sirius XM Radio
Shares in the always-interesting satellite-radio company are up 45% during the past year, notching multiyear highs. And they have done so with their usual volatility — Sirius has a beta of more than 2, meaning it’s more than twice as volatile as the broader market.
Still, with shares setting annual highs and remaining comfortably above their 50- and 200-day moving averages, you can see why traders expect more momentum to the upside.
Also, unlike Pandora, you can make an argument that valuation is on your side. The forward P/E of 31 represents a 30% discount to its own five-year average, according to data from Thomson Reuters Stock Reports.
That’s right: On a relative valuation basis, Sirius actually looks like a bargain — especially with a compound annual growth forecast of 33% a year for the next five years.
It is — the beta of 2.5 means it’s more than twice as bipolar as the broader market.
Still, Cumulus is up 65% during the past year, beating the S&P 500 by more than 50 percentage points. And hey, it is on track to return to profitability this year. Analysts forecast full-year earnings of 23 cents a share vs. a year-ago loss of 50 cents.
However, the stock-price appreciation might have gotten ahead of this turnaround story. The forward P/E of 11 sure looks cheap, and it’s in line with its own five-year average.
But with a long-term growth rate of -1%? Well, be forewarned that this stock could also be cheap for a reason.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.