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For a company that seems to be doing everything right, Sirius XM Radio (NASDAQ: SIRI ) sure has a funny way of attracting naysayers.
A whopping 401.6 million shares of the satellite radio provider were sold short as of the end of last month. The exchanges update the number of existing short positions at the midpoint and end of every month for every stock, and this is the largest number of bearish bets that have been placed on Sirius XM over the past 12 months.
What attracted the pessimists ahead of its holiday-quarter report? Shorts may have thought that Sirius XM was due for a breather after four straight years of market-thumping capital gains. With Liberty Media (NASDAQ: LMCA ) completing its quest to gain majority control of Sirius XM last month, perhaps the worrywarts figured that the party was over.
Wouldn't Sirius XM face some heavy selling pressure if Liberty Media decided to spin off its stake to investors in a tax-advantaged transaction? No. It can certainly happen, but that's also why Sirius XM has earmarked $2 billion in buybacks. If there's a deluge of selling, Sirius XM can counter with a massive repurchase.
Besides, have you been seeing Starz (NASDAQ: STRZA ) lately? The premium movie platform opened at $14.15 when Liberty Media broke it off as a stand-alone company last month. Starz's share price is now old enough to vote, in the high teens.
There is no reason to believe that a spinoff of Sirius XM would be as successful, but we're merely aiming to debunk the myth that spinning off the satellite radio provider would trigger a sell-off.
Sure, now that Liberty Media has gone from 40% to 50% ownership of Sirius XM over the past year, it may be harder to drum up buying support here. However, Sirius XM's guidance calls for another year of double-digit growth in 2013. Since the company's outlooks have proven conservative in the past, it seems dangerous to be holding on to a Sirius XM short for too long.
Sirius XM may have to deliver a chunky piece of good news to trigger a short squeeze and bring naysayer levels down to more historic levels, but until then, the healthy skeptics count is a good thing.