After starting the year at a price of $2.89 shares of Sirius XM (SIRI) has gained as much as 26% when factoring the $3.63 high reached on May 28. After several consecutive quarters of strong execution, Sirius has shown that this new level of confidence is deserved.
I've become a believer. In fact I've been singing the praises of the company's management all year to the extent that I've predicted that shares of Sirius will print $4.00 at some point this year. And I'm not ready to change my tune on this. But I have reason to believe that $3.63 just might have been the height of this stock - at least for the next couple of months anyway. Before you disagree, take a look at the chart below, courtesy of Yahoo!.
On Monday, Sirius started the normal course of trading in pretty unassuming manner. Then suddenly just before noon, there was a noticeable drop. I've discussed quite extensively about the effects of Apple's (AAPL) entry into the premium radio market. Apple is known to be a "disruptor" of things and it seems there was a panic sell (or two) in the circled area.
The drop in Sirius' share price coincided with reports coming out of New York from various media outlets that all-but-confirmed Apple's commitment to take on both Pandora (P) and Google (GOOG). However, if you notice; I didn't include Sirius on Apple's targets of competitors. This is because Apple seems to be focusing on the $4 billion U.S. mobile-ad market. Sirius has no interest in that - not in the grander sense.
Unlike Pandora, Sirius' specialty is its ad-free model, which customers have shown over the past couple of years that they are willing to pay for. Although the stock did recover and closed with normal market trading and there will be theories and justifications as to what it was. Still, the slight panic was pretty meaningful. However, things could have been worse. Take a look at Pandora's trading.
After opening the session at $17.02, shares of Pandora plummeted 14% - reaching a low of $14.61. As with Sirius, Pandora didn't end the session at its low. But unlike Sirius, the long-term outlook is less promising - and that's putting it mildly. I recently marveled at Pandora's growth. But it's hard to envision how this is going to end well with both Apple and Google now in the fold.
The reaction to both stocks, though, tells me that investors are beginning to fear uncertainty and are beginning to take money off the table. I think that's the right move, especially with the broader indexes still in record territories. As such, I believe this is going to add pressure on Sirius in the near-term.
The stock had posted several new 52-week highs this year and I believe that $3.63 was the last one for at least several more months. That said, given Sirius' strong share buyback program the stock will get plenty of support from the company. Retail investors, though, will be gun shy until it's clear about what Apple's plans are.
Likewise, I would think that even though Sirius is now in the midst of a buyback program, the company itself will not want to overpay for its own stock - not if they don't have to. I'm not suggesting that the stock is expensive. But I do believe that management also has an interest in preserving capital. As with retail investors, Sirius management will likely wait for a bottom.
In the meantime, though, it's incorrect to say that Apple's interest in the premium audio market is not adding pressure to the stock. The good news is, given Sirius' strong fundamentals each dip will be an opportunity for investors to add to their long positions. I'm just not expecting shares to regain its upward trend until after the next earnings report, during which I expect management to raise guidance.