An interesting play in the satellite radio sector may be developing, and in full disclosure, I saw an opportunity to get into Directed Electronics, and did so. Directed Electronics is an electronics distributor of several components, including Clifford Alarms, Polk Audio, and Sirius Satellite Radio.
In July of this year Directed issued new revenue guidance for the company outlook, and in particular mentioned satellite radio sales as a contributing factor. As many have already noted, retail sales of satellite radio are down year over year. At that time Directed warned that they anticipated satellite radio sales revenue to be down by 35% to 40%, but in their quarterly report on Friday the figure came in better than anticipated at 31% down. The issue is partially tied to sales volume, and partially tied to the blend of receivers being bought by consumers. Some receivers generate better revenue than others.
So, what we have here is a company that has their hands in the satellite radio sector, and to a certain extent, their bottom line is being impacted. But, the impact was not as bad as the company had originally anticipated only 1 month ago. Sirius is anticipating the launch of some new products in the fall, and fresh products may help spur retail sales going into the retail heavy Q4.
Sirius makes up roughly 25% of Directed business, so is a 30% haircut in the equity justified? The activity on the stock seems to think that there is no satellite radio component for Directed, yet they had $28,000,000 in revenue from satellite in Q2.
IMO the haircut directed has taken is overdone, and therein was the opportunity to buy in. Any opinions?