Sirius Fans in Need of a History Lesson

Editor's note: This is a special bonus column from Jon Markman, whose commentary usually appears on RealMoney. If you'd like to see all of Jon Markman's RealMoney commentary, click here for information about a free trial.

---

There must be something in the air, because satellite radio seems to turn legions of presumably sane investors into legions of raving fanatics. Under fire from sellers and analysts recently, some Sirius Satellite Radio(SIRI) partisans draw strength from their Rasputin, Howard Stern, as they unleash a torrent of invective toward sellers and skeptics. In the past day, since writing negatively about Sirius shares, my email has been flooded with nasty bile from the radio dial.

This sort of extreme loyalty is typical of the middle stages of a crazy momentum run. The stage can run for some time, so I wouldn't discount the possibility of a move back to a share price of $8, $9 or more in the short term. But the fact remains that all parabolic advances in stocks end with parabolic declines. It is one of the few immutable laws of the investment universe.

The disconnect between Sirius and reality appears to run along two key vectors: The stock has a low absolute price, and it represents a popular consumer product. That's a fantastic combination in some situations, but poisonous in others.

A Bumpy Ride

Let's dial back a bit. Back in the early 1990s, Sirius traded in the low single digits for a couple of years as it worked on getting its radio-beaming bird in the air. The stock ultimately ran up toward $70 at the apex of the Nasdaq bubble in March 2000; then, after a number of missteps, it fell all the way back to less than 50 cents in 2003.

At its low last year, debtholders who had been handed stock in the aftermath of a busted convertible bond deal couldn't sell the shares fast enough. Their panic, combined with legitimate concerns about the company's survivability, created the bottom.

As the stock was coming off the bottom in early 2003, it made a great value play -- and I said so in a couple of columns. The company had been recapitalized and had enough cash to get the hardware built and the programming on the air. The service was awesome. Still, the stock mostly went sideways for a year, hanging around $2-$3.