Liberty SiriusXM Group (LSXMA): An Undervalued Gem in the Media Industry?
Liberty SiriusXM Group (NASDAQ:LSXMA) has recently seen a daily gain of 6.41% and a 3-month gain of 8.51%. The company's Earnings Per Share (EPS) stands at 2.46. But is the stock modestly undervalued? This article aims to answer this question by providing a comprehensive valuation analysis of Liberty SiriusXM Group. Read on to understand more about the company's intrinsic value and potential investment opportunities.
Introducing Liberty SiriusXM Group
Liberty SiriusXM Group, through its subsidiary holding, provides a subscription-based satellite radio service. The company transmits music, sports, entertainment, comedy, talk, news, traffic, and weather channels, along with infotainment services. The firm's segments include Sirius XM Holdings, Formula 1, and Braves Group. The company distributes its satellite radios through automakers, rental car companies, retail locations, and its website. Its services are offered primarily in the US and Canada.
At a current price of $24.08 per share, Liberty SiriusXM Group has a market cap of $7.90 billion. Based on our proprietary measure of intrinsic value, the GF Value, the stock seems to be modestly undervalued. The following analysis delves deeper into the company's value.
Understanding GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. It is calculated based on three factors:
Historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at.
GuruFocus adjustment factor based on the company's past returns and growth.
Future estimates of the business performance.
We believe the GF Value Line is the fair value that the stock should be traded at. The stock price will most likely fluctuate around the GF Value Line. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher.
Based on GuruFocus' valuation method, the stock of Liberty SiriusXM Group (NASDAQ:LSXMA) is believed to be modestly undervalued. GF Value estimates the stock's fair value based on three key factors: historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the stock's share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. On the other hand, if the stock's share price is significantly below the GF Value Line, the stock may be undervalued and have high future returns.
Because Liberty SiriusXM Group is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
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Assessing Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's critical to carefully review a company's financial strength before deciding to buy shares. Looking at the cash-to-debt ratio and interest coverage can provide a good initial perspective on the company's financial strength. Liberty SiriusXM Group has a cash-to-debt ratio of 0.02, which ranks worse than 95.42% of 1004 companies in the Media - Diversified industry. Based on this, GuruFocus ranks Liberty SiriusXM Group's financial strength as 4 out of 10, suggesting poor balance sheet.
This is the debt and cash of Liberty SiriusXM Group over the past years:
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. A company with high profit margins is usually a safer investment than those with low profit margins. Liberty SiriusXM Group has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $12.10 billion and Earnings Per Share (EPS) of $2.46. Its operating margin is 16.97%, which ranks better than 86.31% of 1037 companies in the Media - Diversified industry. Overall, the profitability of Liberty SiriusXM Group is ranked 8 out of 10, which indicates strong profitability.
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Liberty SiriusXM Group is14.6%, which ranks better than 82.91% of 954 companies in the Media - Diversified industry. The 3-year average EBITDA growth rate is 24.2%, which ranks better than 75.23% of 771 companies in the Media - Diversified industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Liberty SiriusXM Group's return on invested capital is 6.54, and its cost of capital is 6.9.
The historical ROIC vs WACC comparison of Liberty SiriusXM Group is shown below:
Conclusion
In conclusion, the stock of Liberty SiriusXM Group (NASDAQ:LSXMA) is believed to be modestly undervalued. The company's financial condition is poor and its profitability is strong. Its growth ranks better than 75.23% of 771 companies in the Media - Diversified industry. To learn more about Liberty SiriusXM Group stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
