Call me crazy, but I don't get the cult-like following behind Sirius XM Radio (NASDAQ:SIRI). I don't get it whatsoever. I never have, and probably never will.
I only say "cult-like" because shareholders now have an actual documentary portraying the supposedly nutty valuation at which this company trades. I haven't watched the full documentary, Stock Shock -- The Movie. I'll have to wait for its June 10 debut.
I did, however, watch a two-minute trailer showing the supposed shareholder struggle -- which falls somewhere between arbitrage and conspiracy theory. As it says on the website for the documentary:
Sirius XM satellite radio is one of the lowest priced stocks in the market. This, despite the fact the company is a virtual monopoly (having merged successfully with XM radio) and generates nearly 2.5 billion dollars each year with its 19 million subscribers. Even as Sirius XM has a growing number of fans and market potential, the stock has traded for as little as 5 cents per share making "short sellers" filthy rich.
Oh boy ...
I find that staggeringly misleading, to be polite. If a documentary is being sold for $15.99 on a wave of accounting misconceptions and a general lack of understanding of how investment value is created, viewers deserve a quick rebuttal.
Here's a brief clarification of three widespread misconceptions about Sirius XM:
(1) Sirius XM is one of the lowest-priced stocks in the market.
Lowest share price, OK, but that in itself means precisely nothing. Share price viewed as an independent number gives absolutely no indication of a company's value. None.
What's really important is a company's market cap. Let's get back to basics here: The market value of a company is its share price multiplied by shares outstanding. That's why Berkshire Hathaway (NYSE:BRK-A) at $89,000 per share has a lower market value than Microsoft (NASDAQ:MSFT) at $20 per share.
Looking past the completely immaterial fact that Sirius XM trades at $0.39 per share, you'll find that it has a market capitalization of more than $1.5 billion. In fact, Sirius XM is larger than 30 of the S&P 500 Index components. That's a far cry from drowning in a world of valuation triviality, especially for a company that was recently inches away from filing for bankruptcy protection.
Yet even that is meaningless when discussing what this company is really worth. As Warren Buffett says, "Price is what you pay, value is what you get." Which brings me to point No. 2 ...
(2) If revenue and subscriber base are blowing through the roof, why aren't shareholders zillionaires yet?
Investors love pointing out facts like "revenue has jumped from $13 million in 2003 to over $1.6 billion in 2008," or that Sirius XM's subscriber base is now a massive 19 million people and counting.
What you'll never hear discussed is profit. There's a reason why: Sirius XM has never, ever, made it before. Not a single dime. Ever.
That isn't an irrelevant fact to overlook. If a company spews perpetual losses and continuously burns cash, it isn't worth a can of string beans. Revenue and customer base as standalone metrics mean absolutely nothing when it comes to shareholder value. General Motors (NYSE:GM) logged almost $150 billion in revenue in 2008; AIG (NYSE:AIG) has 74 million customers worldwide. How's that working out for them?
(3) Ah, so it must be those darn short-sellers!
Manipulation! Fraud! Scams! Let's kill all the short-sellers!
As the documentary's trailer notes, an army of wicked short-sellers is frequently blamed for robbing shareholders of their riches.
But does the short-sellers-ruined-my-life argument actually hold up to a few basic facts? Hardly.
Looking at shares sold short as a percentage of total shares outstanding, and comparing it with the entire universe of stocks, Sirius XM doesn't rank first, or second, or 10th ... it ranks 1,332nd.
To my knowledge, not one of the 1,331 companies with deeper short-selling attacks has a documentary pleading for help. You want to see what a short-selling nightmare looks like? Check out Portfolio Recovery Associates (NASDAQ:PRAA), where almost one-third of shares outstanding are sold short.
Bottom line
Look, I'm not saying there isn't value here -- or even that the documentary won't make valid points -- just that I haven't seen a single argument for buying into this company that doesn't ignore its perilous financial situation, or isn't based on pure trading speculation.
Nonetheless, I'd love to see one. Desperately so. If you can scrape together an argument for why this stock's a good buy and will stop spewing losses someday, please, fire away in the comment section below.
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