I've been accused of being a "perma bull" when it comes to Sirius XM (SIRI). It should be evident from my article history that my involvement with the equity has been extensive, and for some time now my involvement with the equity has been exclusive. I rarely write about concerns with the company, and only once back in May and June of 2012 have I looked for lower pricing that did not quite meet my target.
But being bullish has been being "right." It's not reckless, and it's not foolish, and it's certainly not wrong. From the time I began writing about Sirius XM the price has steadily improved nearly doubling in a short 18 months.
Remember we are looking at the forest here, not the trees. The short term price fluctuations that are present in every single stock out there are ultimately inconsequential to the long term trend. The long term trend is dictated by the company's fundamentals. And it's dictated by the forest sized story, not the ultimately inconsequential daily tree sized concerns or issues.
And the story of Sirius XM has been clear.
Increasing auto sales = increased new subscribers = increased revenue = increased free cash flow = capital return to share holders in the form of buybacks = increased valuation in the stock's share price.
Now that's very simplistic but I'd argue that it's all that has been really needed for quite some time now. Since Liberty Media (LMCA) bailed the company out and removed the looming threat of bankruptcy in 2009, investors have been free to ride the cash train up from $0.05 per share to current highs of $3.84. If you were shaken out along the way by bearish noise on the dips, and all sorts of doom and gloom speculation about what demons might swoop in and tear the company apart, then you are likely frustrated that you missed out on a 200%, 400%... 7500% gain over the last 1, 2, or 4 years.
So what does this all have to do with $3.84? Why not grab a price that hasn't been seen in over 5 years, sell out and run? For the same reason I suggested investors should hold on at $2 if they were in it for the long haul. The story has not changed. The trend has not changed. If you're in it for the long haul, now is not the time to sell.
That being said I don't think that $3.84 is the top of the current shorter term run. I believe the stock is ready to break this level and will likely run up relatively close to $4 per share soon. Consider how many analysts have recently updated their price targets from low estimates near $3.50 per share to targets such as $4.60 and $5. 'The street' is waking up to Sirius XM and beginning to understand the impact of all of that long term fundamental story.
"SIRI is trading at nearly 26x trailing 12-month EBITDA, suggesting multiple compression is not occurring as quickly as we suspected might take place, and is rather tracking continuing EBITDA gains. Therefore, as growth momentum at Sirius XM Radio remains intact, we are adding to our year-end 2013 target, and at some point will refocus on even higher levels to reflect earnings and cash flow gains we expect will be developed in 2014. Support from used car markets and new operational efforts will provide added boosts to growth."
- James C. Goss, Barrington Research Associates Senior Investment Analyst
That's a $4.25 target is just 5 months. As always, it's good to see a professional analyst bring their target up to the same price target I began 2013 with.
With yesterday's close of $3.14 this represents an end of the year target between $4 and $4.50 per share. Why a range? Because I feel that as of now, this represents reasonable expectations for both the low and the high end of the share price as the year concludes. If I were asked for one price, I would say $4.25, but obviously share prices can and will trade (hopefully) above or (not hopefully) below one's expectations.
We're not going to get to $4.25 or $4.50 in 5 months by stopping at $3.84, and we're not going to get to $4.60 or $5 per share in 12 months by stopping here either. With current trend and momentum investors should expect the share price to soon flirt with $4 per share. But remember, 5 months from now is a long time, and even if you share my view of $4.50 per share by January of 2014 you should expect the share price to consolidate between now and then.
That means opportunity for those who trade short term swings to try their hand at making a quick buck on the long or the short side. That means opportunity for longs waiting for a better entry point to look for prices near $3.60 or around the 50 day moving average. That means those who need to sell may wish to try to time the short term top and try to sell near $4 per share if indeed that price point ends up being that short term top.
But for the long investor who is in Sirius XM for the fundamental story, moves above and below short term prices such as $3.84 should not cause a roller coaster of elation and subsequent stress. That long investor should keep an eye on the fundamental story and relax, as the price fluctuates itself up with a rising bottom. After all, at some point the trend leaves prices behind. $1.27, $1.87, $2.40, $2.75... Some day investors will be able to add $3.84 to that list. Let the traders have their short term fun (or misery, depending on how well they do). Hold onto your long term conviction so long as the fundamental story remains intact.
Additional disclosure: I am long January 2014 SIRI $2, $2.50, $3, and $3.50 calls. I am long SIRI August $3.50 calls.