Is Sirius XM Radio (Nasdaq: SIRI) headed higher or lower? That's the question we ask when we evaluate insider buying and selling. We ask because how executives spend their paychecks is often a reflection of what they think of their companies' prospects.
Of course, not all buys are equal. According to two decades worth of research from Dr. H. Nejat Seyhun compiled in his book, Investment Intelligence from Insider Trading, buying is most predictive when it (a) comes from the CEO or other top-level executive, and (b) it's performed in bulk. Seyhun found buys of between 10,000 and 100,000 shares to be most informative.
How do Sirius XM's managers measure up against Seyhun's benchmarks over the past year? See for yourself:
| Insider Rating |
Bearish No open market buys and some high-volume sales. Options holders also cashing out in full. |
| Business Description | The only remaining viable satellite radio provider. |
| Recent Price | $1.40 |
| CAPS Stars (Out of 5) | ** |
| Percentage of Shares Owned by Insiders | 0.52% |
| Net Buying (Selling)* | ($2.27 million) |
| Last Buyer (% Increase) | None over the past 12 months. |
| Last Seller (% Decrease) | Dara Altman, Chief Administrative Officer 53,898 shares at $0.98 apiece on May 25, 2010 (Sale reduced direct holdings by 6%.) |
| Competitors |
Apple (Nasdaq: AAPL) CBS Corp. (NYSE: CBS) Time Warner (NYSE: TWX) |
Sources: Form 4 Oracle, Capital IQ, and Motley Fool CAPS. (Data current as of Oct. 14.) * Open market sales and purchases only.
What we're tracking here, and why
Insider buying data can be confusing. Here, I'm concentrating only on buying and selling conducted in the open market. With most of these transactions, insiders control the timing. Other times they're buying or selling under the purview of a 10b5-1 plan. Either way, personal holdings are being bought and sold.
Those personal holdings matter the most -- they're the shares executives hold for investment, rather than compensation. Employee stock options are different; they're compensatory in the purest sense. I've stripped out options-related buying and selling from the calculations you see above.
The Foolish view: bearish
For as much as I've come to appreciate the beauty of Sirius XM's service, there are still questions about its valuation and balance sheet. This is, after all, a company that paid more in interest to service debt than it generated in operating income last year.
And yet there's no doubt the business is improving as subscribers find the service. Sirius XM added 334,727 accounts more than it shed during the third quarter. Management is capitalizing on that momentum with a plan to sell $550 million in new long-term debt, the proceeds from which will be used to refinance existing debt due in 2013.
This is the sort of business momentum terrestrial competitor Westwood One (Nasdaq: WWON) is desperately seeking yet failing to find. Instead, the company has experienced declining revenue as well as negative free cash flow and returns on capital.
By contrast, Sirius XM Radio has grown even as smartphones have taken off, and taken on features that make them more like streaming digital media players.
With all this good news, I'd expect to see insiders buying. Instead, four of them have sold over the past year. Why? Maybe it's because Sirius XM is no longer priced for bankruptcy but instead for outsized growth, and that makes owning the stock riskier today than it was a year ago.
As my Foolish colleague Rick Munarriz says: "Given its slow (yet accelerating) growth and its meager (yet improving) margins, $11 billion isn't cheap despite Sirius XM being the only game in town. Catalysts will have to justify the market premium."
Do you agree? Disagree? Log into Motley Fool CAPS today and tell us how you would rate Sirius XM Radio. You can also add the stock to your watchlist.
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