Sirius XM Radio: Sell before May and Go Away?
John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Sirius Radio (NASDAQ: SIRI) continues to be a popular stock among investors as they see the potential growth of the company as the economy starts to pick up. But it seems, at least in the short term, the favorable outlook has turned. I am not seeing a favorable outlook right now. It appears that the trend is sell your stock, take your profits, and come back later. After a good economic report for car sales for the Q1 of this year, there are two pressing issues that have slowed investors down-- temporarily.
Sirius’ fourth quarter investor guidance was considered conservative when it came out as investors were looking for more projected growth. When the company has its conference call May first, investors are going to be looking for something better. Indications are that auto sales are trending upward. Sales this first quarter have been better than expected and exceeding a year over year. 400,000 better than last year! Sirius XM is being thrown into a position where they may have to raise subscriber guidance. More sales mean more satellite radio equipped cars. This is the good point.
The bad point is that Sirius may have seen its high for awhile. There are two reasons of thought for this:
- Present Debt Load
- Insider Selling
Present Debt Load
It is no surprise that the company has a debt load of $3 billion as investors anticipate increasing revenue year after year to deal with it. With a cash position of $774 million, the stock is selling for almost 3.3 times revenue and some look at this as an expensive stock because of it. It wouldn’t take much to eat into that revenue if the economy deteriorates again. Remember we are coming to the time when we “Sell in May and go away!” The company has risen 20% since the year started and we do have some global evens that could easily send the economy floundering.
- A market sell-off later this year
- Unresolved tensions withIran's nuclear program
- The potential for anotherU.S.credit rating downgrade and debt ceiling debate
It wouldn’t take but one of these to send the economy in reverse and shrink the revenue stream. This would greatly affect the debt load and ability to pay that debt off.
Mel Karmazin, CEO of Sirius XM, just reported selling over 11 million shares on April 16 and 17, 2012, for $2.18 and $2.23 per share. Plus, other insiders have been selling in 2012. Sometimes, is it best to take cues from insiders and sell when they sell? Come May 1st, investors are going to be looking for better guidance, so how are they supposed to take this selling of shares? Astute investors must wonder why any insider would -- much less the CEO -- sell shares only two weeks ahead of the report. I personally would look at what is going on and consider if the CEO lacks confidence in the stock to go higher.
So we have the stock trading at 2.22 and the CEO selling early. Would he sell if he thought the stock was going higher?Liberty Media (NASDAQ: STRZA), who has been talked about for buying the company will not pay over $2.50 a share. Between the macro-economic conditions, insider selling and time of the year, it seems that the stock may have already peaked for the foreseeable future. It looks like a time to either sell and take profits or wait on the sidelines before getting in.
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