Will the last Sirius XM Holdings (NASDAQ:SIRI) short leaving the room please turn off the lights? The number of shares betting on a decline in the satellite radio provider's stock price has fallen to its lowest level in more than a year, and it's easy to wonder if the security that courted naysayers by the truckload when it was a speculative penny stock will ever be a hotbed for pessimism again.
There were 192.9 million shares of Sirius XM sold short as of mid-August, and while that may seem like a big number, it's a lot less than the 251.4 million bearish wagers outstanding a year earlier. Short interest has declined for four consecutive reporting periods, something that also hasn't happened in more than a year.
Don't bet against momentum
Sirius XM has never been as popular as it is right now. There were a record 33.5 million subscribers on Sirius XM by the end of June, 483,000 more than it had just three months earlier. There was a time when bears were willing to bet that connected cars, cheap streaming apps, podcasts, and even pirated streams would supplant satellite radio. They were wrong.
Sirius XM is growing with every passing quarter, and listeners are sticking around. Monthly churn clocked in at 1.6% during the second quarter, a historical low. Sirius XM's bottom line is growing even faster given its scalable model, as its 49% burst on the bottom line towers over the modest 6% uptick in revenue.
You don't bet against that momentum, and that's why we have nearly 60 million fewer shares of Sirius XM sold short than a year earlier. Sirius XM is a machine.
History is also working against the shorts. Sirius XM stock has moved higher every year since plummeting in 2008. Sirius XM has been one of the market's biggest winners over the past decade, yet every year there's plenty of shorts figuring that this is the year that the stock will prove mortal. The boobirds are out of luck again in 2018. The stock is up 31% so far this year, once again trouncing the market.
Sirius XM isn't perfect. It doesn't go up with every single quarterly report. The stock stumbled when it failed to boost its guidance in the first quarter, a sign of how spoiled investors have become with a company that seems to perpetually raise the bar. It made things right this summer when it increased most of its full-year outlook metrics following its second-quarter announcement.
A decade ago the shorts were vultures, circling overhead with plans to pick at Sirius XM's bankrupt remains. Sirius XM will generate roughly $1.5 billion in free cash flow and adjusted EBITDA of at least $2.15 billion this year. Sirius XM short interest hasn't been this low in a long time, but with nearly 193 million shares still sold short, one has to wonder what doomsday scenario the naysayers keep waiting will materialize. Momentum, history, and performance aren't on the side of the bears.