By Brandon Matthews
In a surprise move last week, it seems Sirius XM (Nasdaq: SIRI) has opted to put off its Nasdaq hearing as long as possible — in a last ditch effort to see if its share price can rise above the Nasdaq’s $1.00 minimum bid requirement. Like an addicted person continually putting off treatment, Sirius XM is refusing to accept reality as it continues on its self destructive path. From an outstanding share perspective, Sirius XM suffers from morbid obesity. Its refusal to institute a reverse stock split is the equivalent of refusing to undergo gastric bypass surgery to reduce its food intake.
Rather than do what is necessary, Sirius XM has opted to micromanage its stock price rather than manage the day to day business of Satellite Radio. Carefully timed press releases, such as pre-released subscriber numbers and further debt restructuring, could very well catapult SIRI shares above the dollar threshold — yet as we witnessed just one short month ago, there can be no guarantee that the threshold can be maintained. Assuming the ten day requirement could be met, Sirius XM could find itself back in the very same position in short order.
For those with a basic understanding of technical analysis, you already know that supply and demand are the only two real factors in determining a stock’s price. The reliability of any reported news does not matter. What does matter is its effect on the balance of supply and demand. Potential investors in Sirius XM, when researching the stock, are consistently met with false accusations of it being manipulated. These manipulation rumors create fear and doubt that keep would-be investors at bay, reducing the demand side of the ledger. In like fashion, concerns over Sirius XM’s potential delisting will keep new money on the sidelines. Short sellers use delisting fear to further their cause, and longs only help their cause with unrealistic cries of “massive manipulation.” It is insane.
It does not matter that there is absolutely no chance that the Nasdaq will delist one of its top companies. Stock message boards will continue to be filled with messages from doomsayers that denigrate the company’s potential. Let’s be honest. If I told you to buy XXZX and you looked into it only to find that the company was facing a delisting hearing and that the stock was the victim of “massive” manipulation, would you buy the stock? In the end, it does not matter what the probabilities are with respect to Sirius XM’s continued listing. Demand for shares will drop, offsetting the natural balance of supply and demand.
Ironically, a statement released by Sirius XM last week contained an interesting change in verbiage that has once again forced me to revisit this issue. Previous company statements assured investors that the company would only undergo a reverse split to avoid delisting. In addition to the statement that the company will take all necessary steps to maintain its Nasdaq listing, the most recent statement indicates that the Board of Directors will perform a reverse split “if it determines the move to be in the best interest of shareholders.” This could mean a reverse split could be performed even if Sirius XM shares regained compliance on their own. Once again, Sirius XM has added to the uncertainty surrounding itself.
Perhaps the successful example set by E-Trade (Nasdaq: ETFC) last week has given Sirius XM insight into the reality of its situation. A reverse split can be successful when done for the right reasons. A lower share count can lower the amount of short interest due to pre-borrow requirements. On a percentage basis, there are relatively few shares bet against the company. As a point of fact, Sirius XM would not be on the list of most shorted stocks if not for the size of its float.
For months now, Sirius XM has promised to get better on its own, or seek treatment through a reverse split if it cannot. Each instance is met with more defiance and delay tactics, just as any good addict would make promises to an enabler. And just like the parent, spouse or child of an addicted person, Sirius XM shareholders suffer as the company only delays the inevitable treatment it will require.
Disclosure: Long SIRI