The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.

Sirius Stock Predictions

Summary:

I made a buy rating for Sirius XM last May 31, 2016. Its stock has since risen +36%

I now advise people to do some profit taking on SIRI now. The stock has reached its peak and will likely trade sideways for the rest of the year.

I do not see any serious catalyst that can propel SIRI near or above $6.00.

The $480 million investment on struggling music streaming service Pandora is also money not well spent by Sirius XM.

I Know First has negative one-year algorithmic trend forecast for Sirius XM. Better get out of this stock now and find more promising investments.

My May 31, 2016 article predicted that Sirius XM (SIRI) had 20% upside potential. I made a low-ball price target forecast. SIRI has since delivered a +36.10% return. The YTD gain of Sirius XM is +21.12%. SIRI is looking like a real winner. Its subscription-only satellite radio streaming service is proving to be the better business model than Pandora’s (P) largely ad-supported streaming service.

(Source: Google Finance)

SIRI has grossly outperformed P. This validates my old 2014 thesis at Seeking Alpha that said Sirius XM’s pay radio approach is always going to be more lucrative than ad-supported music streaming. Unlike the bleeding of Pandora and Spotify, Sirius XM has been profitable since 2011. Making a net profit every year in spite of Apple Music, Pandora, Amazon (AMZN) Music, and Spotify, is already a compelling reason to believe that Sirius XM will continue to flourish.

(Source: vuru.co)

Pandora keeps losing money. It lost $343 million last year, more than double its 2015’s net loss of $170 million. Spotify, the world’s largest music streaming service, lost $601.4 million in 2016 and lost $258 million in 2015. My point is that Sirius XM is making a profit while its more famous rivals are actually losing money.

This is why hedge fund managers have been buying SIRI since Q1 2017. They are partly responsible for SIRI’s 21% YTD rally this year. The herd mentality that hedge fund managers inspire can often boost a stock’s price.

(Source: TipRanks)

Do Some Profit Taking Now

In spite of my respect for Sirius XM’s tenacity during this age of music streaming, I am urging investors to do some profit taking on SIRI right now. I believe the stock has reached its peak and it will trade sideways or be stagnant for the rest of 2017. The hedge fund managers will eventually take profit as soon as they notice that SIRI has ran out of steam.

It is always better to do some profit taking before hedge fund managers do. Once those people starts selling their positions, institutional investors will likely follow. Once institutional players start being bearish on SIRI, it could go down fast. Institutional ownership of Sirius XM is 22.52%. They could influence a sell-side trend for SIRI that hedge fund managers will eventually have to do to make profit.

Further, a stochastic oscillator analysis also hints SIRI is now on a bearish trend. Some people unloaded shares after SIRI’s slow stochastic went higher than 80 (Overbought level) earlier this month. It is smarter to sell SIRI now before it drops below $5.10. If you bought Siri at below $4, taking profit now is timely. Wait for the stock to drop to a cheaper entry point and then buy back SIRI.

My sell rating for SIRI is also due to Sirius XM’s decision to buy $480 million worth of convertible preferred shares in Pandora last June. Helping a dying rival is not a smart thing to do unless you are planning to buy all of it. Extending cash assistance to Pandora doesn’t feel right. Don’t feed a rival firm that was once touted as a Sirius-killer.

The $480 million assistance to Pandora could have been used on better things. Like you know, pay off some debt. Sirius XM has a terrible balance sheet. As of December 2016, it had total liabilities of $8.80 billion, while Sirius XM’s total assets was only $8 billion.

(Source: Vuru.co)

Sirius XM has current liabilities of more than $2.7 billion and its quarterly free cash flow is only $256 million. In short, Sirius XM likely borrowed money to buy $480 million of preferred convertible Pandora shares.

Conclusion

Sirius XM loading up new debt (on top of its already massive debt) to help its rival survive a little longer is not good management practice. This should be enough incentive to get out of SIRI. Seriously, what was the management thinking? Sirius XM is doing great, making a net profit from its premium subscription satellite radio service. And the management is still interested in Pandora’s ad-supported, always-money-losing business?

Going forward, Sirius XM’s stock will likely trade sideways at around $5 price level. I do not think it will hit $6 anytime soon. Sell it now and use the money to invest in other more promising tickers. My sell rating for SIRI is backed by the stock’s negative one-year algorithmic trend forecast. I Know First gave SIRI a one-year trend score of -12.17. I Know First has 0.49 predictability score on SIRI. It means its machine learning computers are almost 50% successful in predicting past stock performance of SIRI.

Past I Know First Forecast Success With Apple

I Know First has made accurate predictions on SIRI in the past, such as its bullish article published on March 31st, 2016. In the article, it outlines that there will always be a market for advertisement-free radio. This bullish article also matched the I Know First algorithm, which had a signal strength of 802.52 for a 1 year long prediction. During the prediction period (March 26th, 2016 to March 26th, 2017), SIRI shares have risen 32.82% in line with the I Know First algorithm’s forecast. See chart below.

(Source: Google Finance: SIRI)

This bullish forecast for SIRI was sent to I Know First subscribers on March 31st,2016. To subscribe today click here.

I Know First Algorithm Heatmap Explanation

The sign of the signal tells in which direction the asset price is expected to go (positive = to go up = Long, negative = to drop = Short position), the signal strength is related to the magnitude of the expected return and is used for ranking purposes of the investment opportunities.

Predictability is the actual fitness function being optimized every day, and can be simplified explained as the correlation based quality measure of the signal. This is a unique indicator of the I Know First algorithm. This allows users to separate and focus on the most predictable assets according to the algorithm. Ranging between -1 and 1, one should focus on predictability levels significantly above 0 in order to fill confident about/trust the signal.