[Klaus]

Get Sirius: This radio company isn't making money yet

Posted 6/26/2006 12:52 AM ET

Q: Sirius Satellite Radio's stock (SIRI) is down this year. Is it a good time to buy?

A: Every time there's a new and exciting technology, investors want to pile in. And for some reason, they seem to forget about the price they're paying, virtually guaranteeing themselves poor returns.

Satellite radio was a classic case. Shortly after the dot-com bust, investors looking for wild and exciting investment opportunities didn't lose any time investing in satellite radio. It seemed to have unlimited promise. And it didn't seem to matter that Sirius hadn't made a dime and analysts were torn on when, or if, profits would arrive.

The craze hit a new high when I received a reader question on Ask Matt about Sirius' stock on April 25, 2005, when it was trading for $5.14 a share. As you can read here, I cautioned investors that a "string of losses makes it impossible to perform a traditional valuation on the company." I quoted a Standard & Poor's stock research report, which rated the stock a "hold."

Turns out that was great advice. Since that story ran, the biggest winner on the stock has been shock jock Howard Stern, who was paid $100 million a year plus given the opportunity to cash in $191 million in stock. You can read about Stern's mega payday here.

What has happened to regular investors? The stock is trading around $4.45 a share. That's a 13% decline since April 2005. Interestingly, too, investors haven't cashed in on Stern, either. The stock is down 35% since he started on the air. Meanwhile, the company still loses money, making it impossible to value the stock using any standard method.

If you insist on investing in this stock, all I can tell you is to make sure you use money you can afford to lose.