I was reminded recently of an article I wrote back in March of 2013. That article was titled "Sirius XM : Why I Want You To Sell Your Shares" and I thought it deserved revisiting nearly 18 months later.
The idea within the article was simple. Sirius XM (NASDAQ:SIRI) was performing well and should continue to perform well. Since the company had authorized a $2 billion buyback (which has been raised twice to now total $6 billion) I argued that it would benefit long-term holders the most if Sirius XM could purchase as many shares as possible, as cheaply as possible.
It's simple math, really. The more Sirius XM can buy back, the greater the reduction in outstanding shares and eventually, the greater appreciation for those who hold.
Consider this. The cheaper the price Sirius XM pays for its own shares, the more it can buy back. If Sirius XM can get 100, 200, 300 million shares in the low $3 range, that's preferable to it buying those shares at a higher price. Longs should not want the stock to appreciate significantly during the buyback period.
This continues to hold true today as Sirius XM is still buying back shares. To be completely honest, I did not expect the company to be able to purchase so many shares in the low $3 range. I figured the share price would be in the $4s at this point in time, and the company would be paying more to buy back less. Given my sentiments, though, I certainly have no complaints that the share price has dragged on for a long time.
If you're asking why, at this point, you are not paying attention or you are still not understanding my thought process. Consider this. I am a long-term investor in the company. As I stated in the article linked above:
Because I have a long-term horizon I am not looking for that next pop so that I can flip my shares. I'm not a day trader. I'm not looking to make a quick buck on a few pennies worth of movement.
For those who have been adding here and there, such as myself, the fact that prices have not run up and instead have dragged has been beneficial. On the journey to the destination, if I can pick up more for less, I'm a happy guy.
But it seems many are not particularly happy. Many have sold out and many are frustrated and just waiting for $3.50 or $3.75 or $4 again to "break even" and "get out." Time wears on the impatient and investors may feel that they can get better returns trading other stocks. This is reflected quite simply in the percentage of ownership in Sirius XM since the beginning of the buyback program. Even with Liberty Media (NASDAQ:LMCA) selling back a portion of its shares, both Liberty and institutional investor ownership percentages are up considerably. Retail percentage of ownership has been cut from over 25% to less than 16%. Retail ownership is down by about 40% of what it was.
Retail has been selling, and it is appreciated.
Obviously some uncertainties caused by Liberty's equity swap offer earlier in 2014 and a pause in share repurchase activity from the open market contributed to the share price decline. It went from over $4 per share back down to just under $3 per share over the course of several months. Likewise it is obvious some retail investors may have sold out at the highs and done very well. But on average it appears retail has been impatient and sold low, as Sirius XM has not had average purchase prices near $4 per share to date.
It's my hope that holders will continue to sell low, and that traders will continue to try to catch a few pennies here and there and thus contribute to volume. The longer Sirius XM can buy shares in the $3s, and the more shares they can repurchase, the more that I own of the company.
At the completion of the current $6 billion authorization, if shares can be bought in the $3s, it's reasonable to expect that nearly 25% of outstanding shares (including the total covered by the 7% convertible notes) could be repurchased. This would increase a long holder's percentage of ownership by 33%.
So, I continue to plead with the remaining holders of Sirius XM. Please, sell your shares back to the company so the company can repurchase as many shares at the lowest prices possible. As a long-term shareholder, I believe I will be able to thank you for doing so not to far into the future.
Disclosure: The author is long SIRI. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I am long SIRI January 2015 $2.50, $3, $3.50 calls. I am long SIRI Aug 16th $3.50 calls.