Value-focused investors are always on the hunt for stocks that are priced below their intrinsic value. One such stock that merits attention is Sirius XM Holdings Inc (SIRI, Financial). The stock, which is currently priced at 4.16, recorded a gain of 4.14% in a day and a 3-month increase of 6.11%. The stock's fair valuation is $6.91, as indicated by its GF 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 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, and 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.
Risks Associated with Sirius XM Holdings (SIRI, Financial)
However, investors need to consider a more in-depth analysis before making an investment decision. Despite its seemingly attractive valuation, certain risk factors associated with Sirius XM Holdings should not be ignored. These risks are primarily reflected through its low Altman Z-score of 1.58, and These indicators suggest that Sirius XM Holdings, despite its apparent undervaluation, might be a potential value trap. This complexity underlines the importance of thorough due diligence in investment decision-making.
Decoding the Altman Z-Score
Before delving into the details, let's understand what the Altman Z-score entails. Invented by New York University Professor Edward I. Altman in 1968, the Z-Score is a financial model that predicts the probability of a company entering bankruptcy within a two-year time frame. The Altman Z-Score combines five different financial ratios, each weighted to create a final score. A score below 1.8 suggests a high likelihood of financial distress, while a score above 3 indicates a low risk.
Company Snapshot: Sirius XM Holdings
Sirius XM Holdings is composed of two businesses: SiriusXM and Pandora. SiriusXM transmits music, talk shows, sports, and news via its two satellite radio networks, primarily to consumers in vehicles who pay a subscription fee. The firm's radios come preinstalled on a wide range of light vehicles in the U.S. and Canada. The firm acquired Pandora Media in February 2019 via an all-stock transaction. Pandora is a streaming music platform that offers an ad-supported radio option and a paid on-demand service as well as a robust and growing podcast library. Liberty Media owns 81% of SiriusXM, traded through its Liberty SiriusXM Group tracking stock.
Dissecting Sirius XM Holdings's Low Altman Z-Score
A dissection of Sirius XM Holdings's Altman Z-score reveals Sirius XM Holdings's financial health may be weak, suggesting possible financial distress:
The Retained Earnings to Total Assets ratio provides insights into a company's capability to reinvest its profits or manage debt. Evaluating Sirius XM Holdings's historical data, 2021: -0.23; 2022: -0.35; 2023: -0.31, we observe a declining trend in this ratio. This downward movement indicates Sirius XM Holdings's diminishing ability to reinvest in its business or effectively manage its debt. Consequently, it exerts a negative impact on its Z-Score.
Conclusion: Sirius XM Holdings - A Potential Value Trap?
Given the low Altman Z-score and declining Retained Earnings to Total Assets ratio, Sirius XM Holdings (SIRI, Financial) appears to be a potential value trap despite its current undervaluation. This highlights the importance of comprehensive financial analysis in investment decisions. GuruFocus Premium members can find stocks with high Altman Z-Score using the following Screener: Walter Schloss Screen .
