Lately the third richest man in the world and one of the most talked about investors Warren Buffett is attracting attention, and many people persist in keeping track of his investments. However, there is rumor that Buffett is on the verge of buying Sirius stock, although presently he won’t directly admit to this.
In his most recent 10-K, Warren Buffett lays out the qualities he looks for in an investment. In addition to adequate size and a reasonable valuation, he looks for good returns on equity which is limited or no debt. He also states that he looks for a consistent earning power. So now the big question does Sirius stock meet with his standards, as Buffet is well known for betting on sound investments only.
Sirius has had a relatively consistent earning power, and within the last twelve months has put out a positive free cash flow. The return on debt to equity for Sirius in the past five years has been 1678% which is equal to around 45% as opposed to Google being 21%, Apple being 35% and Motorola being 3%. Sirius presented with a negative equity until 2008.
Sirius stock lacks direct competition when it comes to the satellite radio industry and remains vulnerable from indirect competitors when it comes to technology disruption, and is substantially leveraged and has a history which has generated negative returns when it comes to equity. The question is whether Warren Buffet would make an investment in Sirius? Well the answer is clearly no. Sirius does not meet with Buffets standards.
The Sirius stock fell sharply after two Wall Street companies lowered their ratings and the Sirius shares were down by 23% on the Nazdaq market and this is due to the company’s recent positive flood which made the stocks overly priced.
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