It had been the case for a while that you’d need an extremely high threshold for frustration to be an investor in satellite radio provider Sirius XM Holdings Inc. (NASDAQ:SIRI).
On the one hand, you have a company with a virtual monopoly as the only satellite delivery audio entertainment available in automobiles. On the other hand, SIRI stock was just about flat in 2014.
Of course, that was last year. In 2015, SIRI stock is kicking major tail. Sirius XM is now up nearly 11% year-to-date, beating the Nasdaq Composite by a wide margin.
Which is exactly why investors shouldn’t be too excited for what’s ahead. Consider that of SIRI’s year-to-date gains, more than half of that has come in just the past five trading sessions.
No, right now looks like a proper place to take a few profits in SIRI stock, then wait for the next tradable pullback.
Why Will SIRI Stock Pull Back From Current Levels?
For one, expectations are too high now. The company beat earnings and revenue targets for Q4, yes, but SIRI’s penny per share beat on the earnings side was a direct result of Sirius XM taking a good chunk of its float off the market via buybacks. All told, SIRI spent $2.5 billion on share buybacks last year.
Yes, share repurchases are good for the company and provide shareholder value. But it’s important to understand how they impacted the most recent quarterly results, and not to necessarily expect a repeat or organic performance unless operational results drastically improve. That would require something like a price hike to subscribers or drastically reducing expenses.
Of course, Sirius XM also issued guidance that suggests outperformance for 2015, and that helped culminate in SIRI stock reaching new 52-week highs just south of $4.
SIRI stock is now trading almost 30% above its 52-week low of $2.98; by comparison, the Dow Jones Industrial Average is only 14% above its 52-week low. And even the Nasdaq Composite is 22% above its low. Thus, despite SIRI’s lackluster 2014, don’t assume that Sirius XM is underappreciated as some claim.
Moreover, the 50-day moving average is at $3.54 per share, almost 10% lower than where SIRI stock is now. And while that level should offer good support for Sirius, traders often use that benchmark to add selling pressure.
Remember: One of the qualities of SIRI stock is its volatility. Regardless of how well the company is performing, the stock — by its wild swings — is a money-maker.
Expectations have been raised following the earnings report, but one of the catalysts fueling growth in SIRI is higher customer subscriptions, helped by lower gas prices that also buoyed higher car sales. However, gas prices are starting to creep back up — an event that may slow the momentum of auto sales, which also will weigh on Sirius subscribership growth.
As fear of that grows, SIRI likely will be punished. Smart investors should take profits now and wait for SIRI stock to drop down to the support at the 50-day.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
