The boo birds keep clearing out when it comes to Sirius XM Holdings (SIRI 0.63%). There were 216.2 million shares of the satellite radio provider sold short as of mid-November, a big number but actually the stock's lowest short interest in more than a year.
The number of shares sold short has declined in six of the seven reporting periods since peaking at 266.5 million at the end of July. The trend clearly signifies that bears are moving on, so let's explore the reasons why this could be happening.
1. Fundamentals keep steadily improving
Volatility is the lifeblood of the short-seller, and the antidote to speculation is consistent growth. Sirius XM's revenue has clocked in with year-over-year growth between 8% and 12% every quarter over the past four years, and given the scalable nature of this model, we're seeing the bottom line growing even faster.
Shorts can always argue that they have money riding on the stock's descent because the shares may seem overvalued, but you don't have the same kind of bears that were shorting Sirius XM a few years ago betting on a financial collapse. Sirius XM isn't going anywhere. It's consistently profitable, and its metrics inch higher with every passing financial report. Sirius XM expects to generate more than $1.5 billion in free cash flow this year as it services an audience of 32.2 million subscribers. Do you really want to bet against that momentum?
2. There are too many shiny new playthings to short
Sirius XM was a popular short when it was a bottle rocket, but now that it's establishing itself as a somewhat predictable slow-yet-steady grower, the gamblers are pitching their dice games somewhere else. There have been plenty of volatile IPOs this year, and short-sellers are easily drawn to an image-sharing platform that's losing share to Instagram, a meal-kit provider forecasting a decline in growth in the current quarter, and a high-tech car seller that dispenses used cars out of vending machines.
Those three companies went public earlier this year, and they all have short positions taking up a larger percentage of their public floats than does Sirius XM. There are too many teetering retailers and fading tech companies to short that will at least offer the volatility and dicey fundamentals that draw in the bearishly inclined.
3. The stock price is too high
You have to go back more than six months to find the last time that Sirius XM closed below $5, and while mutual funds and institutional investors have no problem buying penny stocks, there is a stigma of speculation attached to stocks trading for less than $5 a share.
One can argue that Sirius XM's high stock price indicates that it's still a popular short, and there's some truth to that. The number of Sirius XM shares sold short has declined by 22% this year, but the stock is trading 27% higher year to date. The math indicates that the value of the short positions hasn't changed much in 2017. However, bears are more enticed by wilder investments. Sirius XM Radio may be boring these days, but there's nothing wrong with that.