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Broadcasting Sirius XM as a Good Short

NEW YORK ( TheStreet) -- There's a saying, "be careful what you wish for; you just might get it."

Back in January, Liberty Media  (LMCA - Get Report) chairman John Malone offered 0.076 shares of Liberty for each outstanding share of Sirius XM (SIRI - Get Report) that Liberty didn't already own. With a 53% stake, Liberty currently owns a majority of Sirius.

At the time, Malone's offer valued Sirius' shares at $3.68. Investors argued that it was a "lowball" offer. Investors held out for a sweeter deal. Malone didn't negotiate upward. Instead, he backed out of a deal and is now looking to spin off Liberty into dual tracking stocks to include various entities, such as prior positions in Time Warner Cable (TWC) and Charter Communication (CHTR).

Since all of this unfolded, Sirius stock has been under pressure. Shares closed Friday at $3.20, down 2.4%, and the stock is down 8% year to date. This has happened even though an analyst at Maxim came to the company's defense last Thursday, saying that Sirius' fundamentals remain on track.

Maxim has a buy rating on the stock with a $5.80 price target. From Friday's close, this target suggests a premium of 81%. Jessica Reif Cohen, analyst at Bank of America, also has a buy rating on the stock with a $5 price target. From Friday's closing price of $3.20, this target calls for a 56% premium above current value.

This now brings the total to four analysts who have come to Sirius' defense. Combined, these analysts have an average price target of almost $5 per share. The market doesn't think the stock can get there. So what are these analysts seeing that the rest of the market is not?

The rest of the market sees a greater amount of competition. With Apple (AAPL) now deep into the fold, Sirius is not alone anymore. I don't see how Sirius can overcome competitive threats from (among others) Pandora (P) without significant adjustments to its model.

Comments on recent articles claim that I'm short the stock. I've been accused of fearmongering to get current shareholders to sell. This is not the purpose of my articles. There is nothing sinister about my motive; I'm merely discussing facts I find interesting. And, in the process, I hope that I'm successful at helping a would-be investor avoid a mistake.

Recall that back in January, when investors were screaming "highway robbery" on Malone's proposal, I told investors to take the money and run. The stock traded (at the time) 21% higher. All told, I think I have done more than an adequate job of presenting a bearish case.

But it's not too late. I think these shares are still a decent short to $3.00. And that's likely to happen sometime after Sirius reports its first-quarter results. While management has done above-average job defying the odds and growing free cash flow, there are still operational concerns about Sirius' business model.

The company's growth has begun to slow, even amid stronger-than-expected auto sales. Analysts don't seem to care. They also ignore that the rate of self-pay subscribers has come to a crawl. Self-pay targets were mysteriously omitted from the company's recent 2014 guidance.

This was the metric on which management asked investors to focus for most of 2013. With Apple having just hit the automobile dashboard with CarPlay, Sirius may be exercising caution. But from my vantage point, this among other reasons factored into Malone's decision not to offer investors a sweeter deal.

Malone is biding his time and allowing Sirius to execute its way to under $3.00 per share. And it's at that point he may strike. For now, given the increased competitive landscape and the rate of declining growth, Sirius has just become one of the best shorts on the market. But the shorts knew that already.

At the time of publication, the author was long AAPL.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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