Sirius XM: As Shorts and Longs Battle It Out, Who Wins the War?

Jun.21.11 | About: Sirius XM (SIRI)

As shares of Sirius XM (NASDAQ:SIRI) broke through the two dollar mark and held earlier this year, analysts and media outlets all came out of the woodwork to tell investors what a great deal SIRI was as it trucked up towards the $2.50 mark.

These same analysts, mind you, were nowhere to be seen when shares were trading for well below the $1 mark.

The debate has been, since the rise from below a buck, whether or not SIRI is going to remain a trader's play or if its potential as a short term hold will be enough to prevent investors from looking at the stock as simply a trade. The truth is, it's been good to both traders and investors, and it doesn't look like that's about to change much.

Although the SIRI share price has risen from the $1-2 mark pretty quickly, the short interest has been increasing just as fast. The current short percentage stands at just over eight percent, not an insignificant amount, and a number that cannot be ignored as new investors are potentially ready to jump on board this rebound story.

The SIRI stock finally succumbed to the short pressure and took a dive just when all the analysts starting screaming "Buy!", so the sharp recovery of the stock, that was trading for a nickel just over two years ago, has stalled. On the other hand, the recovery of the company as a whole has not.

Quarter-over-quarter, Sirius XM continues to post solid growth numbers as the economy and the auto industry recover, and management continues to make it a premium priority to pay down debt.

You can't argue with that. You could argue, however, that the full recovery of the company might falter if the economy slows again and the consumer does not have as much disposable income at the end of the month to pay SatRad bills -- and that's a valid argument.

That said, just barely a month ago everything was all sunshine, rainbows and candyfloss according to the analysts -- so what gives? It's an opinion of mine to start being wary when the analysts start jumping on board. They all had sell ratings on SIRI when it was trading for below a dollar, then placed buy ratings on it as it surpassed two bucks. Sound contradictory?

It's also an opinion of mine that some money should be taken off the table into any significant run, and the quick decline to sub-$2 prices again demonstrates why. That doesn't take away from the fact that SIRI could well be on its way to returning additional gains to shareholders than what have already been there for the taking.

Again, this has been a great trader's play, but with constantly-improving content and news like GM's announcement that it will offer three months of free Sirius XM service for all previously-owned vehicles with SatRad capability, SIRI still looks like it might be an attractive long term pick as well.

If nothing else, this heavily-traded stock never gets dull. The longs love it, while the shorts grow their positions. Both have won their battles, but the question is: Who wins the war? If growth continues at the recent rate, then I say the longs win in the end.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.