Choosing Between Sirius XM Holdings Inc. (SIRI) and WESCO International, Inc. (WCC)

Sirius XM Holdings Inc. (NASDAQ:SIRI) shares are up more than 5.78% this year and recently decreased -1.31% or -$0.08 to settle at $6.04. WESCO International, Inc. (NYSE:WCC), on the other hand, is down -7.25% year to date as of 08/12/2019. It currently trades at $44.52 and has returned -0.54% during the past week.

Sirius XM Holdings Inc. (NASDAQ:SIRI) and WESCO International, Inc. (NYSE:WCC) are the two most active stocks in the Broadcasting – Radio industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.

Growth

Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect SIRI to grow earnings at a 8.81% annual rate over the next 5 years. Comparatively, WCC is expected to grow at a 5.00% annual rate. All else equal, SIRI’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return., compared to an EBITDA margin of 4.33% for WESCO International, Inc. (WCC). SIRI’s ROI is 29.20% while WCC has a ROI of 8.70%. The interpretation is that SIRI’s business generates a higher return on investment than WCC’s.

Cash Flow

The value of a stock is simply the present value of its future free cash flows. SIRI’s free cash flow (“FCF”) per share for the trailing twelve months was +0.09. Comparatively, WCC’s free cash flow per share was -1.10. On a percent-of-sales basis, SIRI’s free cash flow was 6.92% while WCC converted -0.6% of its revenues into cash flow. This means that, for a given level of sales, SIRI is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. SIRI has a current ratio of 0.30 compared to 2.30 for WCC. This means that WCC can more easily cover its most immediate liabilities over the next twelve months.

Valuation

SIRI trades at a forward P/E of 22.88, and a P/S of 4.05, compared to a forward P/E of 7.83, a P/B of 0.90, and a P/S of 0.23 for WCC. SIRI is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S ratio. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. SIRI is currently priced at a -12.08% to its one-year price target of 6.87. Comparatively, WCC is -20.91% relative to its price target of 56.29. This suggests that WCC is the better investment over the next year.

Risk and Volatility

Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. SIRI has a beta of 1.02 and WCC’s beta is 1.72. SIRI’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment. SIRI has a short ratio of 8.28 compared to a short interest of 3.70 for WCC. This implies that the market is currently less bearish on the outlook for WCC.

Summary

Sirius XM Holdings Inc. (NASDAQ:SIRI) beats WESCO International, Inc. (NYSE:WCC) on a total of 9 of the 14 factors compared between the two stocks. SIRI is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk.