Sirius XM Radio Bears Out

Shorts continue to pile on Sirius XM Radio.

Apr 10, 2014 at 10:00AM

The exchanges provided the market with fresh data on short interest yesterday afternoon, and apparently a lot of people are betting against Sirius XM Radio (NASDAQ:SIRI). The satellite radio provider closed out the month of March with 242.2 million shares sold short. 

That's a big number, but to put it in its proper perspective, we're looking at the largest number of shares sold short of the media giant since the end of last year. That may not seem like such a big deal, but let's catch up with Sirius XM's short interest over the past few months.

DateShort Interest
Dec. 31, 2013 267.7 million
Jan. 15, 2014 221.6 million
Jan. 31, 2014 218.8 million
Feb. 14, 2014 184.8 million
Feb. 28, 2014 186.3 million
March 14, 2014 224.2 million
March 31, 2014 242.2 million

Source: Nasdaq.

It may not be fair to limit our look back to the end of last year. Short interest was actually much higher than the current 242.2 million shares through 2013, peaking above 400 million 14 months ago. However, it's still important to notice that the number of bearish wagers placed here has increased for three consecutive reporting periods. Since bottoming out on Valentine's Day, we've seen Sirius XM's naysayers climb by 45%.

This probably isn't a surprise considering what happened last month. Liberty Media (NASDAQ:LMCA) -- John Malone's eclectic media empire with a controlling stake in Sirius XM -- abandoned plans to acquire the entire company. It didn't seem like such a big deal at the time. Liberty Media wasn't offering much of a premium, and it wouldn't even have been a cash offer. Malone would have simply lumped in Sirius XM with a bunch of slower-growing assets that wouldn't have been as attractive to stand-alone investors. 

However, eliminating a near-term buyout was also probably a dinner bell for the bears. There was no longer a floor to worry about restricted to Liberty Media's less volatile stock. Sirius XM's stock initially spiked on the news, generating its heaviest trading volume on March 14 since the day the proposed transaction was initially announced two months earlier. However, shares of Sirius XM have gone on to shed nearly 10% of their value in that time. One can point to many factors for the slide, but the contributor has to be the market rotating out of growth stocks in recent weeks. By that metric, Sirius XM investors should consider themselves fortunate to not have suffered the 25% to 30% corrections that many of the tech darlings have suffered since peaking in early March.

Folks who are long Sirius XM don't necessarily have to fret the uptick in shorts. Bearish considerations in putting actual money on the line betting on a stock's decline can't be dismissed, but it's ultimately more upside when positive catalysts trigger a short squeeze. 

There are positive catalysts to be had out there. Sirius XM could pre-announce a strong first quarter subscribers in the coming days. Liberty Media can make another play to acquire the balance of Sirius XM on sweeter terms. Things can naturally go the other way, but now that Sirius XM is a thriving enterprise throwing off gobs of free cash flow, it's hard to fathom it slipping too much lower. Liberty Media removed one floor, but it's not the only floor.

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Rick Munarriz has no position in any stocks mentioned. The Motley Fool owns shares of Liberty Media and Sirius XM Radio. 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. The Motley Fool has a disclosure policy.

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Jun 12, 2015 at 5:01PM

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