NEW YORK ( TheStreet) -- After Sirius XM ( SIRI) reported earnings, reality became painfully clear, the share price was not moving higher. All the obvious numbers indicating a decidedly limited upside price potential were correct leaving Sirius nowhere to go but down. Sirius investors received everything they could possibly want from the last earnings report, and yet the stock price sold off. This is the classic buy the rumor sell the fact type of price action as Sirius moved higher into earnings as the "dumb money" rushed in while the smart money hit the exit.I
After trending down for the past week, Sirius is due for a bounce, but the fact remains "normal stocks" shoot up quickly on news of a possible takeover. Sirius wasn't able to move up 15% and it's almost a penny stock. I see more life out of worthless pump and dump stocks after a decent email blast than Sirius demonstrates with a valid buyer. How can this be? Simple, you're not looking at a buyout; you're looking at a buy under. It doesn't happen a lot, but I have traded them profitably before. Liberty media didn't get to where they are by overpaying for assets. If Liberty media is paying $2.15 a share for $650 million worth of Sirius and there is another party who agrees this is a reasonable price, don't you think perhaps $2.15 may be what Sirius is worth? The market overall tends to agree Sirius is valued near $2.15 based on the final closing price. To argue otherwise is the same as stating both parties to the transaction are wrong and you are right. Perhaps most ironic to the whole valuation process is the value the
NOLs put on the table. A NOL is a net operating loss that can be carried forward against future profits. In a nutshell, if Liberty can gain enough control of Sirius, Liberty media is expected to use the NOLs against other profits. It's not the programming or subscribers driving the price this high it's the tax advantages. Sirius as a tax advantaged investment makes a lot of sense when one considers the sky high price-to-earnings ratio given to Sirius. Sirius has finally broken down to "only" the mid-20s, a price multiple typically suggesting strong growth, however, in the face of increasing lower cost providers such as Pandora ( P), Clear Channel and Spotify, it appears the $8 Billion in NOLs is the real value. How much is Sirius worth? About $8.13 billion in total market cap. The real winner will likely turn out to be Liberty Media and even with Liberty's high price-to-earnings multiple, Liberty's appears to make more sense than Sirius for long term investors. Sirius wasn't alone today releasing fantastic news. Pandora announced April's listener hours surpassed 1 billion hours and climbed up 87% from April of last year. For the total U.S. radio listening, Pandora's April market share was just short of 6%, up from 3.1% in April 2011. Unlike Sirius's reaction to a potential buyout, which amounted to a loud thud, similar to a heavy book hitting the floor, Pandora moved up over 8% closing over $9 a share for the first time in May. Lesson to be learned? When the market provides clear direction, it is best to pay attention. Sirius doesn't appear to move higher even with substantial news. On the other hand Pandora responds robustly, and with conviction. If Pandora is able to maintain a price over $9 a share, I will likely once again consider it a stock to accumulate. I do not currently have a position in any stock mentioned.