Sirius XM Hits $2

Well, that didn't take long.

Shares of Sirius XM Radio (Nasdaq: SIRI  ) hit $2 for the first time in nearly three years this morning.

It's just a number. It's just a mile marker. However, just last week a few of us around here were wondering what it would take to propel shares of the satellite radio provider to the milestone they hit today.

I figured that it would hit the mark with the fourth-quarter rollout of Sirius XM 2.0

"The stock may blast through the $2 barrier before Sirius XM 2.0 hits the market," I wrote last week. "We have a couple of more quarterly reports to digest."

We didn't even need to hit the digestion process. Sirius XM nailed it ahead of next week's first-quarter report.

Strength in the automotive sector is clearly helping. Ford (NYSE: F  ) and leading showroom operator AutoNation (NYSE: AN  ) reported better-than-expected results this morning, fueling heartier hopes after months of strong sales.

It's a time to celebrate, but it's also worth reflecting on the dilution that could have been skirted if Sirius XM's creditors had been more forgiving in 2009. Sirius XM was forced to hand over 40% of the company to Liberty Capital (Nasdaq: LCAPA  ) in a preferred-share stake two years ago, and that was on top of agreeing to pay stiff interest on a chunky loan.

Based on market cap, Sirius XM shares would be well over $3 now if it had 40% fewer fully diluted shares outstanding.

Obviously Liberty Capital isn't the enemy. It was the shrewd opportunist that turned a timely loan into more than $5 billion in equity. However, these milestones would be coming quicker if revenue and recent profitability weren't divided by 6.4 billion shares.

At the time, Sirius XM didn't have much of a choice. Bankruptcy was looming. EchoStar's (Nasdaq: SATS  ) Charlie Ergen was the other vocal bidder looking to bail out Sirius XM, but it too wanted a thick piece of the action.

Sirius XM did what it had to do. It paid a dear price to a publicly traded media loan shark, but it gave it just enough time to turn the corner of profitability. It was a bumpy road to $2, but it got there pretty darn fast.

Will Sirius XM hit $2.50 or $1.50 next? Share your thoughts in the comment box below.

Ford Motor is a Motley Fool Stock Advisor pick. The Fool owns shares of Ford Motor. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Longtime Fool contributor Rick Munarriz is a subscriber to Sirius since 2004. He does not own shares in any of the stocks in this article, except for Ford. He is also a member of the Rule Breakers analytical team, seeking out the next great growth stock early in its defiance. The Fool has a disclosure policy.


Read/Post Comments (14) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 26, 2011, at 1:59 PM, siriuslyrick wrote:

    Thanks, Rick. And this on the same day that a dull PhuD over at SA says that Sirius is purely a speculative bet.

    "Sirius XM has a price-to-book value ratio of 36.60. Although book value is not a reliable indicator in today's accounting standards, P/B ratio of 36.60 shows Sirius XM is extremely over-priced."

    So, if it's not a reliable indicator, how can this show anything? To continue with this nonsense, another way of looking at this is that it shows that Sirius XM's book value is extremely undervalued. I'm so glad I paid attention to ratios in math classes.

    I wonder what the fair market value of Sirius XM might be right now?

  • Report this Comment On April 26, 2011, at 2:18 PM, doubting wrote:

    Rick,

    It is fun to read your pieces. You, inlike hundreds of so called experts, do deserve credit for objective and thoughtful, without doom or gloom or rosy and dream scenarios, coverage. I hope you will stay on the course of facts, truth and objectivity. Kudos to you and your "fools" that let you do that. It does not hurt to enjoy respect of your readers even in this industry.

  • Report this Comment On April 26, 2011, at 2:35 PM, tjtoretire wrote:

    Sirius will hit $2.50 next without hesitation. Longs will continue to be richly rewarded.

  • Report this Comment On April 26, 2011, at 2:43 PM, ellisfam wrote:

    I can tell you why Sirius XM will hit $2.50 with two words:

    Jason Ellis

    I'm sure George Takei agrees with me.

    Red Dragons

  • Report this Comment On April 26, 2011, at 2:48 PM, siriuslyrick wrote:

    Seeking Alpha? Do you mean the SA that is facing a lawsuit for naked short selling? If so, what's your point, nflu?

  • Report this Comment On April 26, 2011, at 3:36 PM, eiswien wrote:

    Personally, I see this stock as the perfect storm. If it hits 2, I think it will hit 7. It may go back down a bit for profit taking and "re-positioning", but I personally think it will break through the resistance at two and go much higher. here's why as i stated in another comment i wrote in response to Cameron Kline's article last week.

    This is purely supposition on my part, but here is the reasoning behind my thoughts.

    -if the stock hits 2 it will push another 25-50 cents immediately or soon after on the " perceived increased legitimacy" of the stock and the "frenzy" to get in on some movement..."the penny stock that is going to make it!!!"

    -the "news slanting" authors will then write about the stuff they write about increasing awareness and interest that the stock is now on the move forgetting all the negative schmack gthey published only last...week/month/year regarding this issue.

    -hedgefunds will sell their existing positions and continue to acquire new ones creating increased volume. Additional movement pushes stock up to @3

    -Sirius itself will strategically make one or several well timed announcements about increased profits, subscribers, technological advances, etc. which will create another or other large spikes say 30-50 cents at a time. Ex. close at 3.50; open at 3.90 or 4. Rinse and repeat on this step gets us into mid or late $4 range.

    - additional attention of media and TV "taking head" "anal-ists" who will create more demand of a stock "on the breakout". Movement will push against or break through 5.

    - once 5 is hit, institutions will come into the stock heavily and push it up to 7 or beyond.

    -analysts and other writers will say "THIS COMPANY IS AMAZING, YOU MUST BUY SOME B/C WE RECOMMEND IT"

    - enter the shorts and the continued up and down of this favorite toy of investors everywhere.

    Additionally, there are a few other points to note as to why i think it can be a 'perfect storm':

    1. The market is in need of a good breakout / success story about now.

    2. Those forces who manipulate the markets; brokers, market makers, traders, institutions like "the Goldman Sachs" etc will drive this issue up in order to set up shorts or strategic long gains either with a continued run upward followed by a crash or continued up / down manipulation to create turnover of shares.

    3. The stock is currently so low that short interest does not offer big windfalls at current levels, but short opportunities would improve substantially at say 5-7 per share.

    4. The market needs a good "breakout story" to aid in restoring consumer confidence in this most interesting of ways to gamble.

    5. There is an individual "cult following" of investors of this stock. From what I have seen, heard, and read (in columns like these) most of them are in for the long haul. (long haul means $10). The combined effect of individuals who hold their shares and enter investors/institutions who want to buy shares and that equals stock price rise.

    6. If the company itself begins to buyback its own shares off the open market, which has been suggested, that will also prop up the price.

    That is what I think - and again I say this is all personal supposition.

  • Report this Comment On April 26, 2011, at 3:42 PM, siriuslyrick wrote:

    Much appreciated, Notafoollku. I believe that any fair comment should remain in the discussion, and in turn that those writing articles should respond to comments with something approaching dignity and class. I haven't seen much of that at SA, especially recently.

  • Report this Comment On April 26, 2011, at 5:34 PM, multi007 wrote:

    I read a few posts above, and I keep seeing a recurring theme that institutions will invest once SIRI hit $5. I dont necessarily agree with that. Although the $5 share price may ALLOW the funds to invest, that's no indication they will. Look at Citibank. It held the $5 price for a few and no one jumped in.

    One concern I have with SIRI is the high # of outstanding shares. There really needs to be a stock buyback, but where oh where to find the cash to do so?

  • Report this Comment On April 26, 2011, at 7:44 PM, jerbee02 wrote:

    I'm just enjoying the ride ---- picked up 1000 shares at 1.62 in my first ever real-money stock market buy, and waiting it out until it hits 3.25.

  • Report this Comment On April 26, 2011, at 7:50 PM, krazythaikat wrote:

    First time poster, long time reader. First off, I will agree with nflu that it is good to see comments not getting erased here and letting the open opinion exist.

    Now, to the point of where Siri will go. From what we have seen in the past, there has always been a big run up before the company releases earnings and a drawback afterwards (as mentioned by an analyst recently). I would say we are going to see another 3-4 days of upward trend by Siri then we will see a good pull back. Then it will start to go back up again in a couple of weeks. I would like to see it at the $3 mark by the end of the year, but I would predict more around $2.50. Thats if everything still plays out how it has been.

    The big things to watch for are the lawsuits. I would bet that the Stern suit will be settled out of court and will have some play on the stock price, but not much. The bigger suit that is being filed against them for the raise in prices or whatever they are trying to get at, will likely drag out until Q1 of next year. After this point, I think we will see a growing number of people using Sirius as well as buying into it. We will also see more brokerages covering it. I would bet it will be the end of '12 when it hits $4. After that, the stock will fly. Just look at Ford. Stock was at $2 in Nov 09 and now at $16. Remember, this is just my opinion. And a big thank you to Rick for the good articles you post on here.

  • Report this Comment On April 26, 2011, at 8:09 PM, krazythaikat wrote:

    I want to add:

    There is always the possibility of Liberty coming into play and buying up more stock, if not all.

    1) I think that if they do it, the time would be sooner than later, given the current upswing of Sirus. If they wait too long, they could pay more than what the company is worth.

    2) They may wait till later depending on the outcome of the lawsuits. I would bet it would be hard for a company to buy another and have to deal with all this legal stuff. Liberty would probably wait until Sirius has settled everything before scooping up more stock and putting more $$ into it, just to lose it.

    I also dont see the Sirius board approving a buy out or major stock sell to Liberty if it wont be benificial to them. They dont want to lose money either.

  • Report this Comment On April 26, 2011, at 11:53 PM, wally36 wrote:

    Staying motivated...gambled two grand on 10,000 shares back when the price was bouncing around 0.20 because I liked the programming and had faith..I'm in long and feeling pretty good about my first stock buy right about now.

  • Report this Comment On April 27, 2011, at 10:52 AM, bottomfisherman wrote:

    Houston we are ready for launch and oh nice try Lazard better luck next time!!!!!

  • Report this Comment On May 29, 2011, at 2:16 PM, jm31563 wrote:

    Since picking up 1000 at 1.36 last year, This company has been doing wonderfully and I am really glad I stuck to my guns about not giving in to naysayer article writers of Fool.com and cashing in too soon. I am holding long and as the auto industry comes back so will this stock continue the course it is currently on.

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