Naysayers are having a change of heart when it comes to Sirius XM Holdings (NASDAQ:SIRI). The leading premium radio provider has seen its short interest shrink from a peak of 266.5 million at the end of July to just 232.8 million at the end of September.
That's still a large number of bearish wagers, and will always be. Sirius XM's low stock price, heavy volume, and historical volatility are magnetic to pessimistic speculators. Arbs shorting Sirius XM to hedge long bets on its majority stakeholder will also naturally prop up the share count. However, the latest tally is the lowest short interest on Sirius XM since October of last year. Bears are closing out their positions, and with the stock up 40% over the past year it's easy to see why.
Rocking on a new level
Sirius XM stock hit an 11-year high this summer after serving up another blowout quarter. The satellite radio monopoly was supposed to start to crumble under the weight of smartphones in connected cars -- an argument that Sirius itself used in its appeal for regulators to approve its combination with then-rival XM Satellite Radio nine years ago -- but we're not seeing that. Revenue has grown by 7% or better in each year since the two satellite radio providers combined. Earnings and free cash flow have grown even faster.
There are now 32 million subscribers on Sirius XM's platform. New cars remain the lifeblood of Sirius XM's account growth, but we're now seeing used cars become a vital source of subscriptions as more secondhand cars hit the market with previously installed Sirius and XM receivers. Growth hasn't flinched when Sirius XM inches its rates or its music royalty fees higher.
Why would skeptics bet against what is now a consistently profitable company eyeing $1.5 billion in free cash flow this year? Why bet against a company that made one of the savviest deals this summer in acquiring an effective 16% stake in Pandora (NYSE:P). Sirius XM was able to snag some say in the streaming radio pioneer at a great price, and the 6% in preferred share dividend income that it's collecting is more than offsetting the money it borrowed to make it happen.
Short interest is at an 11-month low, but it doesn't mean that the value of those positions has also diminished. The stock keeps moving higher, and those 232.8 million shares sold short today representing $1.1 billion in value would've represented just $0.75 billion in value a year ago before the stock's 40% pop. There may be fewer bears around, but they have a lot of money riding on a decline that has failed to materialize. Critics deserve to be heard and respected, but with shorting Sirius XM proving to be a wealth-slurping game more often than not since the stock bottomed out eight years ago, it's easy to bet on the side with the bulls.