Is the SIRIUS Washout Nearly Finished? (SIRI)

Posted in General 
March 8th, 2010

Two and three weeks ago, SIRIUS XM Radio Inc. (NASDAQ: SIRI) was the talk of Wall Street.  Since last year, the stock has risen fast than a rocket from under $0.10 to finally back over $1.00.  An analyst ‘Buy’ recommendation from Wunderlich in recent weeks with a $1.00 price target and then some added upgrades from ratings agencies helped propel the stock higher.  All this is in light of the notion that it is about to have at least some added auto competition from Internet radio and despite the notion that Howard Stern is now an event risk as his contracts is set to end.

But the realization of an astronomical valuation came back into the limelight after traders and investors realized they had gotten very far ahead of themselves.  John Malone would dwarf Karmazin and have effective control of the company if he were to convert all his debt.

And as shares slid back under the $1.00 mark, the question came up of what was the fair value of SIRIUS XM per share.  Last week we saw very elevated trading volume with one day seeing 309 million shares.  Last week we also saw shares trade briefly under $0.83, but the stock never closed under $0.89 o an adjusted basis.  And after that, we saw it almost hit the buck again at $0.99.

The stock is down 3% today at $0.91+ on over 120 million shares trade with about 45 minutes to the market close.  That isn’t double the normal volume, but is definitely close enough.

This stock may have entered into a trading range now barring any significant stock market event.  Trading as high as $1.18 in Mid-February and as low as $0.83 in early March on no real news is a wide range even for a penny stock.

Imagine if that was seen in Google or Apple.  It would be the talk of Wall Street and Main Street.  Trying to use charts and inflection points in penny stocks or in cult stocks may be more financial alchemy rather than exact science.  But the alchemist approach would look more and more like a solid trading range has been established.


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