Shares of Sirius XM Radio(NASDAQ: SIRI)have fallen, and for now, they can't get up. The stock took a hit since reporting poorly received financial results late last month, and it has now closed below $5 for six straight trading days.
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Investors aren't exactly smarting. The stock may have closed consistently north of $5 for more than two months before the recent swoon, but the shares are still trading 10% higher year to date. However, there's no denying that staying above $5 is psychologically significant. Let's go over some of the things that could get the satellite radio monopoly back above that mark.
Image source: Sirius XM Radio.
1. Warren Buffett can get even more excited about Sirius XM
Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) became a surprise investor in Sirius XM Radio late last year. The move was revealed in a regulatory filing in February, sending the stock above $5, where it continued to close until its recent slump.
Berkshire Hathaway has a significant stake in Sirius XM, no doubt attracted to its steady growth, consistent profitability, and juicy free cash flow of roughly $1.5 billion a year. However, Buffett is also a shrewd investor.
If he feels that Sirius XM is a bargain below $5 -- and that is where he initiated his position late last year -- he can always add to that stake. Berkshire Hathaway buying more shares would help, once again, validate the stock in the eyes of traditional or conservative investors who may not normally dabble in growth stocks with low share prices and high valuation multiples.
2. New car sales can bounce back
Sirius XM slumped after its ho-hum first-quarter report, but things didn't get any better this week when auto manufacturers reported weak sales for the month of April. Industry tracker Autodata reported that 1.43 million vehicles were sold last month, 4.7% below the prior-year's showing.
Sirius XM's gross subscriber additions live and die by car sales. The media giant has tried to push into the used-car market as a way to reach less affluent drivers hooking up with secondhand cars, but the juiciest leads will always be in freshly minted cars rolling off assembly lines. A bounce in new car sales later this year would result in an increase in gross additions.
3. Guidance can be tweaked higher in July
One of the problems with last month's quarterly report is that Sirius XM kept its initial full-year guidance intact. The company has historically offered up conservative guidance that it can push higher with every quarterly update -- and that just didn't happen this time.
Investors will naturally want to see if Sirius XM moves its guidance higher when it reports in late July. It's already at unsettling levels by expecting just 1.3 million net subscriber additions this year, its weakest full-year showing, in eight years. Standing still isn't an option, and taking a step back could be catastrophic.
More ways to move higher
Thankfully, there are a lot more than three ways to get Sirius XM stock to move higher. It can make a game-changing acquisition. Sirius XM can gain ground in digital delivery. It can push through a rate hike without subscribers bailing in droves. Slowing growth can start to accelerate.
Sirius XM has many paths that it can take to a brighter future. It may be below $5 now, but it's just a single catalyst away from getting back up there, again.
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