Sirius short interest is on the rise

Shares of the satellite radio company are among the most overvalued in history.

By Jonathan Berr Mar 14, 2012 12:10PM
Image: Driving home (© gehringj/Vetta/Getty Images)More investors are betting that Sirius XM Radio (SIRI) will fail.

Short interest in the satellite broadcasting service was 285.8 million as of Feb. 29, up about 5% from the previous week. This represents a reversal from the Feb. 15 data, which showed short interest dropping more than 10% from the week before to 273 million -- its lowest level in about three months.

The earlier decline was unusual and got tongues wagging. Was it a reaction to rumors that Liberty Media (LMCA), which in 2009 saved Sirius from bankruptcy, would acquire an 80% stake in the company? I don't know why short interest in Sirius has rebounded -- or if this increase is part of a trend. Sirius, one of the most-shorted stocks in history, is tough to read.

Shares of the corporate home of Howard Stern are up nearly 26% despite numerous commentaries about how the stock is overvalued and is a "great short." Sirius trades at a price-to-earnings multiple of 33.97, which is below its five-year high of 241.85, but nonetheless high. Wall Street analysts expect the company to earn a tiny profit of 2 cents a share on revenue of $802.71 million. The company's long-term debt level of $2.86 billion, though down by more than $200 million, is still high. Wall Street analysts have a one-year price target of $2.52, which is about where it trades now. The company does not have many things going for it.
 
Sirius forecast the addition of 1.3 million net subscribers in 2012. This was less than analysts had forecast, but given the expected increase in auto sales, it seems like a low-ball figure. Last year, Sirius XM added 1.7 million subscribers, the biggest increase since the merger of Sirius and XM. Revenue topped a record $3 billion, and free cash flow practically doubled to $416 million. The company even managed to reduce programming costs.

Dark clouds, though, continue to hover around Sirius XM about everything from the Stern lawsuit over bonus payments to the significant expenses it expects to incur in about five years to replace its network of satellites. CEO Mel Karmazin has managed to keep Sirius XM going when many people had written the company's obituary.

This is not a stock for the faint of heart. It bounces around like a pinball game. Unfortunately, no one has any idea how long the stock will stay in play.

Jonathan Berr is a Sirus XM customer but not a shareholder.

Tags: SIRI

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