By VFC’s Stock House
Jim Cramer
Shares of Sirius XM Radio Inc. (NASDAQ:SIRI) were thrust into the spotlight late last week as an interview by CNBC’s stock pundit and ‘Mad Money’ host Jim Cramer with Sirius XM CEO Mel Karmazin aired on Thursday evening.
The two discussed the recent successes of the company and keyed in on the bright future expected for Sirius XM, given the vast increase of free cash flow, which – they both argued – will significantly enhance the value of the company moving forward. The swift increase in the satellite radio service’s subscriber base was also noted, as was the rebound in new car sales that is expected to continue to bring in new subscriptions, which translated into more free cash flow and, consequently, more value for investors.
The interview marked a stark turnaround for Cramer, who had been bearish on the company for years, most notably around the time when SIRI was on the brink of bankruptcy and was bailed out by Liberty Media Corporation (NASDAQ:LMCA, NASDAQ:LMCB), who owns roughly a 40% stake in SIRI.
The interview played positive on the share price, as is common for a company receiving a ‘Cramer Pump’, shares closed Friday at $2.35, just a penny below the high for the day and significantly higher than the $1.84 price that opened the year.
The interview and positive coverage provided a solid follow-up to the recently-released fourth quarter earnings numbers, which were announced last month. Those numbers had already reinvigorated the share price and led to a move higher, but after hearing the Cramer interview, investors may now have more of a warm and fuzzy feeling than at any point since the collapse of a few years ago when SIRI trade for a nickel.
With that being said, there still may be reason for investors to remain on their toes with this feel-good story.
Firstly, while a ‘Cramer Pump’ typically leads to a quick spike in share price for a particular company’s stock after a positive mention, it’s just as common to see that stock take a dive shortly after the initial spike as the traders take their profits, thank Cramer for quick chance to make a buck, and then move on for the next solid, short term price mover.
Take a look at Oncothyreon Inc. (NASDAQ:ONTY), for example. Shares of this company spiked to nearly ten dollars after last summer after receiving a positive mention by Cramer, but shares quickly slid back to previously-traded levels once the hype died down. Those who bought into the hype most likely lost out, and even more so as the company just announced news that trial results for an ongoing, late stage trial would not be available until early next year, a bit beyond the expected time frame.
Another concern among SIRI investors, that was notably absent from the Cramer interview, is that many insiders are exercising options and selling shares at a time when Karmazin and Cramer are painting such a pretty picture for the future potential of the company and its share price. The list of those selling, or planning to sell includes Karmazin himself.
I’m not a believer that some insider selling is necessarily a bad thing, after all, the big boys want to realize profits and enjoy some ‘Grey Goose and Good Life’ profits once in a while just as the small time investor does, but the amount of SIRI shares being sold right now is more than just noticeable — it’s a big number, especially considering the sunshine, rainbows and candy-floss being dished out right now by Cramer.
Another aspect to consider is that the biggest gains are most certainly already in the rear view mirror for this stock. It’s nice to see Cramer jump on board now, when SIRI is near its multi-year highs, but he was nowhere to be found before, when although the straits looked dire, the potential reward far outweighed the risk, in the opinion of this guy.
Moving forward, this company already has a market cap of well over eight billion dollars. It’s arguable that there is still room for upside, but how high is that market cap going to go? Earnings need to pick up significantly from their current levels in order to justify the current cap, let alone any more, in my opinion.
The positive press is out in force for SIRI, after a nice price run, which should also have some investors considering the fact that someone is selling into the spike, while the press is all good; and that could be contributing to the reason why SIRI’s short interest is growing.
On the other hand, the short interest was growing when SIRI was trading for a buck, as well, so the current stats may or may not be a sign of what’s to come.
This company has a very solid and loyal base of retail investors that will live or die with the stock. There’s nothing wrong with that, but it’s always wise to take emotion out of the picture, conduct some solid due diligence and devise entry and exit strategies based on the DD.
Sirius XM is one of the great rebound stories of the last few years, but also take note of the recent developments and consider their future implications on the share price.
As always, the longs and the shorts will continue to battle this one out, but the traders might be the ones who are continuously banking bucks with SIRI.
Disclosure: No position
Contact the author: vfc@vfcsstockhouse.com
VFC’s Stock House offers investing opinions, insight and ideas on a variety of different stocks, options and ETFs, as well as commenting on news that affects the market.
I never pay attention to guys like Cramer. Of course, it is remarkable that he turned 180 deg. in favor of siri.
Although Cramer often behaves like a clown (it appears to be his style), he is definitely not stupid and does not want to be last to jump on siri wagon while seeing such remarkable progress. I would not state adamantly that the interview did not help move the stock up. At the same time, let us not forget that the stock ended the day before the interview at $2.295. So, it is wrong to deny that the stock was already on the move.
As to the interview itself, to me it was not remarkable but rather strong for two reasons. First, Mel made it very clear that he “cannot stop liberty from doing whatever they decide to do but… is able to protect the other 60% of investors. This is of paramount importance because it will help a lot with the right share price if liberty wants to acquire a part of or all siri shares. Second, I was pleased to hear that the price increase is having “a very modest impact on the sub growth”. This is critical information. I would interpret this “very modest impact” as predicted churn of 2.1% or smaller. At the same time, Mel emphasized that higher OEM sales and “very modest price increase impact” would drive the bottom line.
To conclude, Cramer or no Cramer, there is much more certainty with the company and the stock due to the interview and we should expect very strong Q1 results. I believe that did the interview masterfully and delivered messages he wanted to. This is really remarkable.