Can Sirius XM Keep Hitting New Highs?

Sirius XM Radio (Nasdaq: SIRI  ) is rolling along nicely.

Shares of the satellite radio provider hit a fresh 52-week high last week, peaking with an intraday high of $2.51 on Wednesday.

It's more than just a 52-week high, though. Last week's run pushed the stock above its $2.44 high set 15 months ago. You actually have to go all the way back to early in the summer of 2008 to find the last time that Sirius XM traded this high.

We're talking about a four-year high, and that's pretty impressive for a company that was nearly left for dead in early 2009. Investors have forgiven the massive dilution associated with giving Liberty Media (Nasdaq: LMCA  ) a 40% preferred share stake in 2009. They have also learned to accept that the growing popularity of Pandora (Nasdaq: P  ) isn't coming at the expense of Sirius XM's subscriber growth.

The last time Sirius XM traded this high, someone else was in the White House. The last time Sirius XM traded this high, Sirius and XM were still separate entities. Regulators didn't approve the controversial merger until late July in 2008, and by that time the shares had already slipped below $2.

Bulls will argue that Sirius XM has earned these highs. We already knew that Sirius XM closed out the second quarter with strong subscriber growth, but after seeing the company once again raise at least one component of its guidance, it would seem silly to bet against it.

The bears are still out there, of course.

There were 329.9 million shares of Sirius XM sold short at the end of July. Guess what? That's also a new high. It's also the perfect catalyst for a short squeeze, and that may be what the market got a taste of last week. Sirius XM's volume surged into the nine figures during the last four trading days of last week. A streak that long hasn't happened since last summer.

So where does that leave Sirius XM investors today? Will the media giant continue to make the naysayers regret their taste for shorting? Sirius XM's stock may be richly priced on an enterprise value basis, but there are still plenty of service improvements -- particularly on the streaming side -- to make the service even more engaging.

The highly scalable nature of the company's business given its low variable costs makes Sirius XM a tough company to bet against when it's gaining in popularity. After tacking on more than a million net subscribers during the first half of the year -- and notching a fresh four-year high last week -- this doesn't seem to be the end of the push to fresh highs.

Running of the bulls
I remain bullish on Sirius XM's future. It should come as no surprise that I'm promoting the CAPScall initiative for accountability by reiterating my bullish call on Sirius XM for Motley Fool CAPS.

I also just put out a premium report on Sirius XM Radio, detailing the challenges and opportunities that await investors who are long or short the dynamic media giant. A year of updates is also included with the report. Check it out now.

The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story, except for Liberty Media. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


Read/Post Comments (4) | Recommend This Article (5)

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  • Report this Comment On August 13, 2012, at 12:05 PM, Brent2223 wrote:

    Important to remember that most of the short positions are just hedges against convertible bonds, they aren't all naysayers. So I doubt we'd see the typical short squeeze, and wouldn't want to bank on that.

    That aside, I agree with the bullish arguments presented. In particular the scalability - SIRI is the poster child for economies of scale!

  • Report this Comment On August 13, 2012, at 1:33 PM, Austin77478 wrote:

    "Important to remember that most of the short positions are just hedges against convertible bonds, they aren't all naysayers."

    Brent2223! Do these people have to cover their shorts "hedges against convertible bonds", if Sirius' stock appreciation becomes unbearable.

  • Report this Comment On August 13, 2012, at 3:55 PM, doubting wrote:

    In response to your question, Rick, I am 100% confident that siri not only CAN but also WILL keep hitting new highs.

    I listed in my previous post a number of reasons supporting this premise. The nearest ones could be the following.

    1. Near-term announcement of a combination of refinancing and repaying 2013 debt in full.

    2. FCC denial of liberty petition for de facto control of siri.

    3. Further company updates of its 2012 metrics such as increase in 2012 subscriber target growth to the range of 1.8M- 2M new subs, and possibly higher fcf reaching $750M for the year. EBIDTA has alreday been updtaed to $900M and there is not much room left for further incerases.

    Any futurte resolution of liberty uncertainty (it can only be positive for shareholders) will enebale the company to start a massive share buyback program for the next ten years or so.

    To conclude, siri longs stand to triple or quadrauple their investments in the next 3-5 years. This is a conservative outlook that does not provide for the market hype and new love from the WS. Siri is the stock of the future. I have call it "a mini-apple in the making". There are no media companies and very few companies in general that can boast such consistent double digit growth for all metrics. Siri's profit margins will get to 50% in the next five years with no need to pay taxes. Mark my word!!!

  • Report this Comment On August 13, 2012, at 8:17 PM, hanks88 wrote:

    Iam 66yrs old me and all my Buds don't even know how to change our hi-end cars to AM or FM!!!t ry to drive to Vegas without XM !!! I got Sports,Music,Sex,BBC,Howard !! AM & FM is all wind and no rain ! !! "Shalom"

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