Sometimes valuations are ridiculously cheap and sometimes they get incredibly high. Sirius XM Radio Inc. (NASDAQ: SIRI) has managed to keep chugging back to multiyear highs. Now that Pandora Media Inc. (NYSE: P) has rallied significantly after the news broke of what could have been a punishing secondary offering, we wanted to break down how these companies are being valued by the market on a per-subscriber basis.

The first thing we want to say is that you cannot simply buy or sell a stock based on valuation alone. There are just too many forces at work in the stock market that can allow a stock price to defy logic. A safe “market multiple” for the S&P 500 Index is roughly 15 times earnings, with 13 being “cheap” and 17 considered elevated. If you hear that Sirius XM trades at about 33 times next year’s earnings and Pandora trades at 95 times next year’s earnings, does it sound expensive?

Now break this down further as to what a company is valued if you merely purchase the stock on a per-subscriber basis.

In Sirius XM’s last earnings report, it claimed some 25.1 million subscribers, its first time to go over the 25 million mark. Both Yahoo! and Google list its market cap at about $24.3 billion, even though we would caution that Sirius XM is retiring shares. At this rate, new investors buying at the $3.92 multiyear high are paying about $968 per Sirius XM subscriber.

Pandora is harder to calculate at the moment because of the new shares that just came onto the market, but the finance sites at Yahoo! and Google list the market cap as $4.74 billion. Pandora is more difficult to calculate also because so many of its users are free on the advertising model, but its shares are at all-time highs. In its September 5 “audience metrics” report, Pandora said that it had 72.1 million active listeners at the end of August 2013, but the breakdown in total quarterly revenues of $157.35 million was only $28.83 million from subscription (and other) and $128.52 million in advertising. The good news is that for the six months, the total revenue of $282.86 million was broken down as being $49.19 million from subscription (and other) and $233.66 million in advertising.

Pandora trades at about 7.3 times this year’s sales and about 5.25 times next year’s expected sales. Sirius trades at about 6.4 times this year’s sales and about 5.8 times next year’s expected sales.

Again, you cannot just say that these stocks are expensive just because of the multiples involved. Too many things are at work in the market. Pandora has a massive short interest, and Sirius XM keeps lowering its borrowing costs and pushing out those debt maturities. Sirius XM also is repurchasing shares rapidly.

Investors must also consider that there is more than just the cash flow in these growth businesses. The goodwill value of the contracts from musicians and labels, as well as with car carriers and distributors, makes up a hefty amount of these high valuations. Have you tallied up the cost of creating a satellite network up in space? Have you tallied up the cost of creating a Web-based in-car radio system? Neither would be cheap to duplicate.

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