Sirius XM Radio is having an interesting year. The satellite radio operator’s share price is down 88% in the last 12 months, but up 204% in 2009. Why the volatile ebb and flow?

Part of the reason is the company’s high profile on Wall Street – it’s arguably the most popular penny stock out there. And why shouldn’t it be? After all, the company is the exclusive provider of satellite radio and in-car TV broadcasts for almost 20 million paying subscribers in the United States and Canada.

But to assume that all the interest in Sirius XM (NASDAQ:  SIRI) is because of the company’s great growth prospects would be dead wrong. Scores of investors want to see this company crash and burn.

As of last month, almost 5% of shares available to the public were short Sirius XM, and while that might not sound like a lot of shares, it’s 25% more short interest than even beleaguered Citigroup is facing.

Part of the reason for that dichotomy of investor sentiment is the battle between the company’s cash-machine business model and its over-leveraged balance sheet. At present, the $1.4 billion company is sitting on around $5 billion in long-term debt – a number that’s grown 260% in the last year largely as a result of the merger between rivals Sirius and XM.

Can Sirius Scrape up the Cash?

But Sirius XM isn’t insolvent – yet. Last year, the company generated $1.7 billion in revenues, and much higher numbers are all but guaranteed for this year as a result of the merger. Add to that the last-minute $530 million cash infusion Liberty Media Corp. agreed to lend to Sirius XM last month, and this company is certainly adept at eeking by the guillotine.

That skill is part of the reason SIRI shares have appreciated so dramatically in 2009.

In the case of Sirius XM fundamentals (like the company’s income statement and balance sheet) are squarely pitted against its business (like the fact that it provides a great service). Now, more and more, investors are counting on the business side to win out.

After all, the Sirius and XM merger is estimated to generate $400 million in excess costs this year alone.

Believe the Hype

Indeed, media sentiment has even changed for Sirius XM. Where financial writers used to lampoon the flailing company, they’re now standing behind its prospects for turning a profit in 2009.

“Things are going so well for Sirius XM Radio these days that it doesn’t even have to say a word for positive things to happen. All it has to do is sit tight as those around it generate headlines favorable to the satellite-radio operator,” said the Motley Fool’s Rick Munarriz in an article about trends that should be a boon to the Sirius XM bottom line.

Analysts too are flip flopping over to the side of Sirius XM, estimating a narrow loss for the coming quarter and a target price more than 16% above what the stock trades at today.

As investors, we’ll just have to wait until earnings season to see whose side ends up the victor in this battle royale. Whatever the future holds for SIRI’s stock price, the one constant is that the ride is sure to be a wild one. Until then, I’ll just stick to listening to Sirius in my car, not watching it in my portfolio.

Source: Are Investors Finally Getting Sirius?