Sirius XM (NASDAQ:SIRI) is on an absolute tear lately. Hitting $3.95 in aftermarket trading Thursday, the stock has moved from a low of $3.33 just before the company released 2014 subscriber numbers and has since posted a gain of $0.62 per share, or 18.6%.
This is a dramatic move, and I would be lying if I said I was not both surprised and impressed by its strength. Although I did write on January 27th, that Sirius XM looked to be due for a breakout and included the following chart:
I did not expect the share price to continue to follow the parabola to such an extent that it has. Consider the chart Thursday:
And it's clear that the share price has gone parabolic from a daily perspective, even if I was slightly off and had to move the parabola to the right by a few days. Is this justified?
Absolutely. I have argued that for almost all of 2014, the share price has languished near the low end of valuation and even slightly below my personal opinion of where the lower extremities should be. I have continued to encourage long-term holders to use the opportunity to add on the dips, and for those who were looking to exit at 2013's high area to continue to hold, as it would get back there eventually. My advice was to simply watch for a shift in news to trigger that move.
The share price is now back in the $4 area. Sirius XM has only ever exceeded these share prices for a very short time in 2013, but don't let that fool you. Today, Sirius XM has more subscribers, generates more free cash flow per share, no longer has the overhang of $550 million in convertible debt, and has shown that growth is not really slowing to the extent that some were concerned about. The smoke and mirrors created by one simple contract shift at the end of 2013, along with a slew of one-time charges, weighed heavily on the stock but should not have to the extent that they did. Investors should have seen through all this, as I have been saying all along.
Some will remember the loss on change in value of derivatives? Please reference my article from August 2014. Investors will remember that Sirius XM repurchased $500 million worth of stock from majority owner Liberty Media (NASDAQ:LMCA) through 2014. As the stock dragged below that purchase price, Sirius XM posted a loss relative to the difference in the price it paid versus the current price of the stock at the time. Was it really a loss? Perhaps, if one thought the share price would not increase. Was it a drag on earnings? Perhaps, if one thought the share price would not increase. Did it 'fool' a lot of people? Yes. Did it cause multitudes of critical headlines such as this piece from The Wall Street Journal?
Sirius XM Profit Falls 4.4% as Expenses Rise (please note they have changed the title of this article at some point after my article on August 4th 2014 criticizing it)
But investors should consider that that 'loss' is now actually a gain, with shares trading for a good deal more than what Sirius XM paid for them. The higher Sirius XM moves in share price, the better that purchase will look, and as I have stressed repeatedly, the buyback program is a long-term issue that should generate long-term value. Beware talk about it 'not working' in the short term. Arguably, it is better that it does not work in the short term, as that means the program is not driving the share price higher and thus working against itself.
The point here is that while 2014 was a rough year from Sirius XM, which ended virtually flat while the rest of the market climbed double digits, it was unwarranted.
So what now? Has Sirius XM turned a corner? Yes, I would say so. The first good news in a long time has come through and the share price has reacted appropriately. Can it keep going? Absolutely. I have an upper range of value near $5 per share at present, and I would not be surprised to see the stock make its way to that price over the coming year, or even exceed that price if the company can continue to perform on a quarterly basis. Even at the current $3.95, the stock is relatively undervalued based on how it has traded in the past.
I still believe it is reasonable to expect many will be willing to sell in this area and that the share price may find some resistance here. The sting of falling from $4.18 in October of 2013 to $2.98 in April of 2014 can still be felt by many, and while a huge number of retail shareholders have bailed out since, there are still a good number remaining who are just waiting for that chance to exit at or near those 2013 highs.
Of course, this is based on my observation of comments on articles at Seeking Alpha, as well as personal conversations with a good number of long-time holders. Some may change their mind and decide to hold.
So what of the buy and hold long who approaches their investing by adding every once in a while similar to how I have done in my retirement account? I have said it numerous times but it bears repeating. Buy or add at or below the 50-day moving average. Keep it simple. That would mean your most recent add was on February 2nd at $3.51, you have never once added at prices above $3.82, and you would not be adding today at $3.95, but would instead be patient and wait for some sort of pullback. Anyone who has followed this simple strategy is now 'green' on every single purchase they have ever made in Sirius XM (or previously Sirius without XM) for almost 9 years.
(red horizontal line denotes max buy point at $3.82 on November 1st 2013)
I continue to urge investors to follow this simple strategy until or unless the story changes in Sirius XM. It is a disciplined approach that should generate well above market returns over time. For those who absolutely need to exit, or simply want to, moves like this and significant extension above that 50-day moving average provide an opportunity to do so. Much better for one who seeks to exit to 'sell a rip' versus 'sell a dip'.
To be clear, that is not a recommendation to sell. I think investors should look forward to 2015 with renewed optimism and expect significant share price appreciation over the coming year and beyond.
Disclosure: The author is long BAC.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I am long SIRI call options from June 2015 to January 2016 at strikes from $2.50 through $3.50. I have recently closed my February 20th and March 20th positions as of 2/12 and will look to re-open those positions at later expirations.
AI
