Wow. SiriusXM got punished for good behavior. It is a classic case of expectations being high and the company just missing a few key metrics. Despite a great quarter, the company was a shade light on revenue, and the stock was punished. My hope would have been holding the line at $3.95, but the close was even below that. The next support below is $3.83. We now need to see what type of metal this equity has. With enough guidance given to establish a new valuation, we can begin to look to 2014.
The volume was massive. That demopnstrates that there were a lot of people taking money off of the table. Are we done clearing the decks? That will be determined over the next 10 trading days. We are now in the countdown to see what Liberty Media will get for 500 million shares that will be sold in installments beginning this quarter. Essentially, the price per share on those is established by taking the average share price over the next 10 trading days and applying a 1.5% discount. There is every reason in the world why Liberty would want to bolster the price tag.
From a valuation perspective, SiriusXM is right in its wheelhouse at the moment. The equity likes to be at an EV/EBITDA ratio at between 20 and 21. The bottom end ratio is usually about 17 and the top end at 24. At current prices SiriusXM is at 19.59. The models bellow represent current valuation based on 2014 guidance, and the top end value based on the same guidance.
As you can see, this equity now has room to run to top valuation levels at $4.85. Essentially the comfort zone is between $4.05 and $4.25.
On the technicals we have 3 caution flags in the EMA's. All three developed in yesterdays action. Strong support sits at $3.83. The key now is holding $3.83. It is too early to call whether this equities punishment is complete, so simply stay in a holding pattern. We want to watch for lower volume, especially if the direction is down. There were 122 million shares traded on the day of the call. We are essentially seeing a reset and need to let the water settle a bit now.
Support and Resistance
Exponential Moving Averages