Message from Short Sellers: Dump Sirius


Sirius XM Radio (SIRI) is one of the most actively traded stocks in America turning over 56 million shares a day. The satellite radio firm's stock is up 70% during the last year, and its price has broken $2 for the first time in recent memory.

Short sellers have signaled it is time to dump Sirius shares. The short position in the stock as of April 15 was 270.3 million shares--the highest of any Nasdaq listed firm--which is about 7% of the stock's float. Short interest rose 1.9% over a two week period.

The cult stock that has fascinated retail investors for years as they have bought the shares as a proxy for the satellite radio business. It was assumed five years ago that satellite radio would continue to add subscribers as drivers abandoned over the air stations. The growth came at the cost of over $2 billion in debt taken on by the firm. Sirius could not carry the load and nearly went bankrupt in February 2009 .

Sirius CEO and radio management legend Mel Kamazin were able to set a debt and equity deal with Liberty Media that kept the company in business. That package has not answered the question of whether Sirius is a good investment.

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After years of double-digit growth, Sirius's revenue rose modestly from $2,526 billion in 2009 to $2.839 billion in 2010. Income from operations rose more sharply from $228 million 2009 to $465 million last year. But, the most important measure of the firm's health--subscribers-- only rose from 18.5 million to 19.4 million based on a daily weighted count of customers. Sirius is no longer a growth company.

The hurdles to the future improvement to Sirius's fortune are formidable. Like most consumer electronics firms, it has to battle with Apple (AAPL). Many cars now have iPod adapters so people can take their favorite music with them. Many cars and SUVs have rear-seat entertainment devices. And HD radio has made the sound quality of terrestrial radio better.

It is not many years ago that Sirius and its merger partner XM had the new car entertainment business to themselves. That period is over.

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