A Serious Short Opportunity

[nodoodahs]

SIRI. Seriously.

Valuation is unquestionably unreasonable. Price to earnings and cash flow metrics are useless, but price to sales in the 60's and price to book is about 13.

The last insider purchase was a year ago. Since then, seven different insiders have combined to sell about 50 million shares, with a 40 million share block sold at $7.05, currently the stock trades right at $7. That big block sale was from "Apollo Advisers" and they sold 40 million of the 157 million shares held, leaving them with 8.8% of the outstanding.

Company equity reached a peak in 2003 at $1.33 billion. As of 2Q2005, equity stood at $0.72 billion. Intangibles only account for about 5% of assets, and that percentage hasn't changed much over the years. However, the number of shares outstanding has increased from 1.1 billion to 1.3 billion over the same time. Combined, this is an impressive dilution of shareholder value. They've issued debt and/or stock each year, usually both, and rarely pay any debt back. I would think they have difficulty paying even the interest on their debt, considering their operating cash flow and net income are negative, have been negative, and will most likely continue to be negative for some time. This stock has 20 analysts estimating forward earnings, and all 20 say it will lose $0.50 or more for fiscal year 2006. Their D/E ratio is 0.91, which isn't terribly high, but is significantly above the NYSE median.

It's demonstrably impossible for the satellite radio format to be profitable in the current business model. Either prices need to increase by several powers of two, or they need to transition to advertiser support. In either case, their "value proposition" over standard radio will be degraded by the move.

Current Analyst Recommendations
Strong Buy 11
Moderate Buy 2
Hold 9
Moderate Sell 0
Strong Sell 1

That in and of itself is a good sign of a short ...

I suggested SIRI as a short on another forum and was told it typically "runs up" around Christmas. Well, in 6 of the last 11 years, SIRI Dec high was higher than the Nov high. One time it was only 2% higher, but the other times it was significantly higher. However, 5 of the last 11 years, SIRI Dec high was lower than the Nov high, as recently as 2002 down by 23%. I would not call that a "pattern" - most likely the writer was extrapolating one anectdote into a "typical" case, which happens a lot. I did find a true pattern, though. In 10 of 11 years, the Dec open for SIRI was below the Nov high. Nov high so far in 2005? $7.10.

Joe Clayton has 750,000 shares that vest on 12/31/2005. Likewise he has 250,000 restricted shares that vest on 1/1/2006, not counting shares that were accelerated to vest on 1/1/2006 per the May 2005 proxy statement. Given that Joe has sold 6 million shares in the past year, it's a good bet he will sell soon after he's vested.

Karmazin has 6 million in options at $4.72 per that vest every year for the next five, starting at Nov 18 2005. You remember that ONE insider buy in the last year? It was Karmazin, right after being named CEO. Hmm. I wonder if he will sell his options as soon as they vest ...
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[nodoodahs]

Opened the position yesterday. Got too aggressive with trying to lock in gains and wound up getting kicked out with smaller profit than I could have gotten. Basically my mis-management of the trade. I will have to learn from it.
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[nodoodahs]

http://www.thestreet.com/_yahoo/options/marinooptions/10253241_2.html

Sirius saw the January 7.50 calls trade 5,600 times. The stock was up 23 cents, or 3.2%, to $7.40.
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[nodoodahs]

Today's "pop" is either excitement about the lineup announcement for the Martha Stewart channel, or shorts covering, or possibly both (one triggering the other).

Still giving serious consideration to opening a modest short position either tomorrow or on Friday morning, based on a belief that Karmazin will sell 2-3 million shares starting Friday and carrying on into next week. Nothing "inside" about this, just based on reading the proxy statement and watching the pattern of insider selling. Also, the stock has rarely been this high since Karmazin signed on. Lastly, MACD and RSI provide some support to an overbought condition.

However, any input y'all can give is welcome!
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[jimprit]

I'm not sure, but I seem to remember reading that SIRI and XM are ready to include ads on some of their channels. This stock is unquestionably overvalued, but I have learned (the hard way) never to short a stock based solely on valuation. Share dilution and massive insider selling may be a reason to short this thing. If anyone is thinking of shorting, I would be interested in hearing the reasons you think a short position will be profitable. Jim

[collies_99]

http://stockcharts.com/def/servlet/SC.web?c=SIRI,uu[w,a]waoaynay[df][pb10!c10!f][iLb14!Lh14,3]&pref=G

Weekly is looking like a consolidation within an on-going up-trend.

Who says that valuation ever has anything to do with stock prices anyways?

http://stockcharts.com/def/servlet/SC.web?c=SIRI,uu[w,a]daoaynay[dc][pb10!c10!f][iLb14!Lh14,3]&pref=G

Until the daily short term ma's curl down, shorting will always be very risky. Picking tops is like picking bottoms, if the timing is even off it can be very painfull.

Just my thoughts.

Cheers and good luck all.

[nodoodahs]

Scott Greenstein had 425,000 units vest on Apr 15 2005 and sold 211,381 on the same day. James Meyer had 400,000 units vest on Apr 15 2005 and sold 179,635 on the same day. Apr 14 2005 was a Thursday. On Apr 15 2005 (Friday), the stock opened down $0.05 and closed down $0.15. The following Monday (Apr 18 2005), on much heavier volume, the stock closed down another $0.07. The pattern is that key personnel share vesting dates for large quantities of stock (lots of dilution), and they sell at least 1/2 of it as soon as it vests.

The short ratio was 2.7 days to cover as of Oct 11 2005 per Yahoo!Finance. If I were to guess based on the chart http://finance.yahoo.com/q/ta?s=SIRI&t=3m&l=off&z=m&q=l&p=&a=v&c=, I would think that lots of shorts have covered and the ratio is not that high today. I would also think that 2.7 days was not an excessive short ratio for a stock like SIRI.

Any other opinions on SIRI as a short opportunity?
_________________
I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.