By Jason Bond of Jason Bond PicksNEW YORK ( TheStreet) -- Sirius XM ( SIRI) stock enthusiasts could be in for a continuation of the bull market in this incredible turnaround story. By the close of 2014 first quarter, I expect SIRI to briefly touch $4.60, a nearly 27% rise in price from Wednesday's close of $3.63. The rise will be driven by its good fundamentals. Also, a "no change" of the near-zero interest rate monetary policy from the Federal Reserve should provide an additional liquidity lift to the overall equities market, including the highly visible, volume-leading and outperforming stocks.
Strong Fundamentals, a Remarkable Turnaround StoryAt a low of 5.2 cents per share in February 2009, the company was all but left for dead, but a $530 million capital injection from behemoth Liberty Media during February 2009 saved Sirius from the clutches of receivership. Under terms of the agreement, Liberty provided Sirius a $280 million 15% senior secured note during phase one, another $150 million during phase two, and up to $100 million during phase three, for a total of $530 million. From the $530 million proceeds, Sirius retired $172 million of maturing 2.5% convertible notes and paid down $100 million of loans outstanding under terms of its revolving credit facility. The remaining cash of $258 million was used for general corporate purposes. In return, Liberty received 12.5 million shares of preferred stock convertible to 40% of Sirius' common outstanding. In addition, Liberty occupy two seats on Sirius' board of directors. Today Sirius has achieved success from the dark days of 2009. Record revenue of $962 million, adjusted EBITDA margin of 30.7% for the 2013 third quarter, and an increase to free cash flow of 26%, are remarkable achievements for a company once trading for a nickel more than three years ago. It gets better. Sirius may achieve a 34.5% adjusted EBITDA margin for the fourth quarter, according to Sirius XM's third-quarter conference call of October 24. Subscribers are expected to grow by 1.5 million (guidance of 1.6 million by year-end). New-car sales penetration should reach 69% -- including Honda, which expects to introduce SXM 2.0 platform as part of its new contract with Sirius XM. That contract expires in 2020 and will add "20 points" to the penetration rate with Honda (4.1 million vehicles yearly output), according to Sirius XM CEO Jim Meyer.
Forward P/E (Dec. 31 2014): 30.33
PEG ratio (5-year expected): 1.82
Price to Sales: 6.03
Price to book: 7.86 All of the five valuation metrics above, which I use as a starting point to further analysis, show a richly priced stock. The PEG ratio, especially, is quite high, and implies a stock growing nearly twice as fast as earnings. Rhetorically speaking, are investors expecting a doubling of Sirius' 6.54% profit margin? Maybe.