Wednesday, April 27, 2011

SIRIUS XM Hits $2.00… What To Expect Now (SIRI)

When penny stocks cross each new dollar level, speculators and investors generally take a look at what they are holding and decide if there is a reason to keep on holding on or whether they should move on down the road.  When you add in that this is SIRIUS XM Radio Inc. (NASDAQ: SIRI), you could have a serious review by this same investment community.  SIRIUS XM did print a new high of $2.00 today and its new adjusted 52-week trading range is $0.86 to $2.00.
SmarTrend over the weekend pointed out that SIRIUS XM has the highest EV/Sales (enterprise value to sales) ratio of all cable and satellite providers at 3.6-times enterprise value.  If you go back to our “10 Hidden Gems” from the SIRIUS XM 2010 Annual report, we would caution against this sole enterprise value note as the real market cap is based on about 3.93 billion shares outstanding.  The company actually has 9,000,000,000 shares authorized at December 31, 2010 and 3,933,195,112 of those are what makes up the free float.  Liberty Media Corporation holds preferred stock that is convertible into 2,586,976,000 shares of common stock and the company cannot issue equity or debt securities without the consent of Liberty Media.
This $2.00 milestone hit this morning is right on the heels of what has become a near-term high in short selling in SIRIUS XM.  This also comes after SIRIUS XM lost Wunderlich as one of its top market bulls after a downgrade in recent weeks.  If U.S. auto sales can stay on the mend, then SIRIUS XM Radio might be able to milk out more and more gains.  The supposition here of course is that this also implies that the economy keeps growing and that higher gas prices won’t curb new car buying.
It seems that what matters most is the upcoming price hikes.  A post-merger suit is still out there, but it seems that it is more than a bit late to have much impact today.  With Pandora soon to be public and with “free” radio out there for anyone, it seems that calling this a monopoly may be harder and harder to prove.
Still, the question needs to be “What happens at $2.00 per shares?”…  The answer so far is that the buyers backed away and the sellers didn’t back away.  Shares hit a high of $2.00 briefly today and that did not last very long.
There is another situation that investors and speculators will want to pay attention to here.  Options trading has to go on the rise.  When stocks “break a buck” (hit a new dollar price), it generally means that options trading sees an increase as well.  We have seen only about 2,300 of the May 2011 $2.00 CALLS trade hands today. If you go out to June 2011, the same sort of options trading is seen.  For this to matter, you should probably have to see trading volume go up easily into the tens of thousands of contracts.
It would be easy to say that SIRIUS XM should be a “Sell” here.  It would also be easy to say “It will keep growing.”  There are as many caveats as one can imagine in SIRIUS XM regardless of which side of the market you are on here.  At a minimum, it would seem that many SIRIUS XM holders who have been in the stock for less than three years would exercise some prudence and lock in at least some profits.  It now may take new buying interest from a pool of new investors for SIRIUS XM to continue running higher and higher.

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