BOSTON (TheStreet) -- Sirius XM (SIRI) - Get Report shares may quadruple to as much as $8 in the next three years as the satellite-radio company adds subscribers without many new costs, says Craig Hodges of the Dallas-based Hodges Fund (HDPMX) - Get Report.

Hodges says Sirius, which reports second-quarter financial results Tuesday, could follow a similar trajectory as footwear maker


(CROX) - Get Report

and clothing and accessories company


(FOSL) - Get Report

, which attract a similar rabid fan base of investors. Crocs shares are up more than 840% since the financial crisis took hold in late 2008, and Fossil shares have rallied 400% over that same time.

Sirius XM, which trades at $2.11, headed toward zero two years ago, pummeled by net losses and bankruptcy fears. But the company has continued to add subscribers, helped by a rise in new-car sales.

"As a $2 stock, it could be worth $6 or $8 in a few years. It could be that type of a winner," Hodges says of Sirius XM. "I would say that it's a two- or three-year stock, though, if I were a buyer today."

Hodges' bold prediction would make Sirius XM's hefty retail-investor base very happy if it were to come true, and Hodges says with a laugh that he understands the fervor his comments could generate. But as an owner of Crocs since $1 (it now trades for $31) and Fossil since $3 (the stock now trades above $125), Hodges knows how patience can pay off.

Sirius XM is a holding in the $307 million Hodges Fund, a multi-cap core equity mutual fund created in 1992, and the $9 million

Hodges Pure Contrarian Fund


, opened in 2009 to invest in beaten-down stocks. As of June 30, Sirius XM represented a 3.1% weighting in the former and 3.5% in the latter.

As part of the Hodges Fund, Sirius XM counts


(WMT) - Get Report



(CMI) - Get Report


Southwest Airlines

(LUV) - Get Report



(HAL) - Get Report

among its peers.

Hodges' funds have reduced their positions in Sirius XM, which seems to contradict his outlook on the company. The funds now own about 5 million shares, down from 12 million shares previously. Hodges says the selling was only profit taking as the funds had costs as low as 56 cents, and he notes that Sirius XM remains a significant position in each of the two funds.

Not all Sirius XM watchers share Hodges' rosy view. Analysts following the stock have an average 12-month price target of $2.24, according to


. The most optimistic view from Wall Street analysts tops out at $2.50, well below Hodges' long-term target. Hodges, though, says Sirius XM has developed into a powerhouse at turning subscribers into profit.

"If everything goes right for these guys and they add subscribers and convert those who try it, you could have real money fall to the bottom line," Hodges says of Sirius XM.

One of the main reasons Hodges believes Sirius XM could triple or quadruple in price is that the company is small but "they can add subscribers without adding costs. They have incredible economies of scale, which is the beauty of it," Hodges says.

The largest source of new subscribers for Sirius XM is new installations in cars manufactured by

General Motors

(GM) - Get Report



(F) - Get Report

, among others. Free trials are given to car buyers and Sirius XM attempts to convert those trials over to paying subscriptions.

In Sirius XM's first-quarter report, subscribers totaled 20.6 million and the conversation rate of trial subscribers was a weak 44.7%. By comparison, Sirius XM ended last year with 20.2 million subscribers and a conversion rate of 45.1%.

Hodges argues that the conversation rate could perk up if Sirius XM can make inroads into the used-car market.

"That's a big catalyst," he says. "They do have a deal to get into the used-auto market, which is three times the size of the new-auto market."

The subscription business model and the close ties to the auto industry allow Hodges to brush off fears of increased competition for Sirius XM. The company doesn't have a rival in the satellite-radio space, but has faced competitive pressure from

Pandora Media


and other free music sites, as well as portable music players like the


(AAPL) - Get Report

iPod and iPhone.

"There's been a lot of talk of increased competition, but I think those are very overblown," Hodges says. "I don't think that will be long-term competition for Sirius XM. There is a lot of functionality with Pandora that does not work. There are a lot of things Pandora would need to change to be accepted more."

When asked if he views the advertising model Pandora employs as inferior to Sirius XM's subscription model, Hodge says that he "would agree with that whole-heartedly. When you look at the big picture, after the combination of Sirius and XM, they've cut costs. They've found synergies. And as they get to a bigger number of subscribers, more and more that goes to the bottom line."

While Hodges still holds on to a few million shares of Sirius XM in hopes it will triple or quadruple as he expects in a few years, he's content knowing that he has exposure to a company that is growing revenue by 8% to 10% now while earnings before interest, taxes, depreciation and amortization, or EBITDA, is growing by almost 20%.

"If you're a short-term player, it's not an expensive stock," Hodges says. "It's not cheap, but if they can continue to grow EBITDA at 20%, I wouldn't say it's overpriced."

-- Written by Robert Holmes in Boston


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