Will Pandora’s Stock Be a Buy After This Congressional Debate?

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With shares of Pandora (NYSE:P) now trading around $8, is P a BUY, a WAIT and SEE, or a STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement:

On Wednesday, the House of Representative’s Committee on the Judiciary began hearings for Internet Radio Fairness Act, a bill that could make-or-break Pandora.

Pandora has made a very public campaign against the current standard under which royalties are determined. “The current rate-setting structure is a clear case of discrimination against the Internet and innovative services,” stated Chairman and Chief Executive Officer Joseph Kennedy in his written testimony. “This lack of a level playing field is fundamentally unfair and indefensible.”

And Kennedy is right, at least in one sense; internet radio royalty rates are determined under a different standard than that used for cable and satellite radio. This difference arose partly because of the relative newness of services such as Pandora’s and partly because of the inherent differences between satellite radio and internet radio. Originally, section 801B of the Copyright Act governed the use of all copyrighted sound recording. However as the Internet became increasingly popular, Congress passed the 1998 Digital Millennium Copyright Act as an update to the law, and this act set different standards for Internet radio…

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