SIRIUS XM Reverse Split Now Almost Certain (SIRI)

SIRIUS XM Radio Inc. (NASDAQ: SIRI) almost had a very bad day on Friday.  Shareholders of the biggest penny stock of them all should probably be thankful that the stock only closed down 1.4% at $0.6798.  What is interesting is that the trading volume was ‘only 40 million shares’ compared to an average volume of over 60 million shares.  The stock had been down as much 4% on the NASDAQ warning letter over the $1.00 stock rule.  Now that the market has rebounded so much, we are getting a sense that that the old $1.00 rule 5450(a)(1) is going to start getting enforced again.  In the case of SIRIUS, our thought here is that this will make the pending reverse split almost a certain event.

SIRIUS has until March 10, 2010 to “fix the problem” of its share price and has to close above $1.00 for 10 straight trading days.  Unless the cash-for-clunkers brought in waves and waves of new subscribers and with Christmas still being a wild card, you have to keep in mind that this one has already bounced exponentially from its lows.  It still loses money and this stock would literally have to rally another 50% to break the buck….

A reverse split is just about a definite event at this point.  It has already been approved and the only unknown here is the reverse split ratio.  If the old data is still valid, that will come to a rate of between one-for-ten and  one-for-fifty.  Our guess is somewhere around one-for-twenty-five.  Unfortunately, the reverse split game usually gets met by a whole new wave of short sellers who finally get to put bets back on against a stock as the old $1.00 and $5.00 share price is not a hurdle.

You can bet a reverse split is coming.  It is a bump for this NASDAQ listing issue, but reverse splits are rarely effective in generating higher gains for shareholders.

JON C. OGG