For some investors and traders, extreme market volatility is a great way to make huge short-term profits. Andrew Snyder says Sirius XM Radio (NASDAQ:SIRI) is in dire straits and faces a real threat of bankruptcy. But most of this negativity has been priced into the stock. And an emergency shareholder meeting could provide a short-term jolt for those willing to take on the risk.

This from Today’s Financial News:

For satellite radio investors, these are the times that everybody knew was coming. Financial pundits have been writing about the industry’s certain doom for years. We all knew the notion of satellite radio was based around a shaky-at-best business model.

Not only did the industry’s originators have to shoot multi-million dollar satellites into the sky, they also had to convince millions of Americans to pay for something they were already getting for free.

XM and Sirius were vicious competitors at first, but quickly realized they could not survive without permanently joining forces. They petitioned the FCC for permission to merge and waited for nearly two years before they received a verdict.

Eventually, the airways regulator gave its blessing and Sirius XM Radio (NASDAQ:SIRI) was born in July of this year. The company may not make it out of its infancy.

Build it and they “may” come

It turns out the pundits were right. Few folks are willing to pay to listen to the radio. Sure, subscribers at Sirius grew like wild grass for the first few years, but the novelty quickly subsided and the supply of early adopters that propelled the industry through its first few years quickly dried up. Now, the burden of an immense plunge in consumer spending is about to force the company into bankruptcy.

The subscriber growth figures tell the whole story. In 2006, Sirius saw its subscriber base grow by 82%. In 2007, that figures was 38%. This year, it will be lucky to lock in growth of 10%. And next year, the company optimistically expects to expand its base by just 8%.

Those are the kinds of growth figures you would expect to find in a mature industry, not one with less than 20 million subscribers.

What is worse than the company’s declining revenue base is its monumental debt load. In the next twelve months, Sirius has over $1 billion in debt coming due. $210 million of it must be paid in February. Unfortunately, the company’s balance sheet shows no way for it to find the liquidity needed to pay its bills.

Combine huge debt, incredible talent contracts (Howard Stern has a $500 million, five-year deal) and a consumer base that is going broke and it is easy to see why shares of the company are trading at all-time lows.

With share price at just $0.15, shares of Sirius XM have plunged by more than 90% this year.

Bankruptcy and an equity valuation of zero should be a serious concern for investors. Unless the company can re-structure, find the investors and subscribers it needs and can lower refinance its debt, there is no way it is going to stay in business for more than a year or two.

Finally… some potential

But speculative investors finally have a shot at rewards with the company. In late December, Sirius shareholders will get together to vote on some very important issues.

First, executives are asking investors to approve a major dilution of their positions. The company wants to boost the number of shares outstanding from 4.5 billion to 8 billion in an effort to bring in much-needed capital. The move, while essential to the company’s future, would hammer the valuations of today’s shareholders.

To help make shares more attractive to potential shareholders, management would also like voters to approve a major reverse stock split, ranging from 1 for 10 to 1 for 50. If approved, shareholders would own dramatically fewer shares of the company, but those shares would be worth much more.

With so much negativity priced into this company, it is hard not to be at least a tad optimistic.

For investors getting in at today’s prices, the upcoming shareholder meeting could lead to profits. After all, it is bound to bring increased press coverage and any good news could lead to short-term price spikes.

Volatility will be the key to this stock over the next few months. If you can stomach the ride and the very real threat of bankruptcy, there will be some shots at fairly large profits.

I will let you decide if such a risky play is for you.

Source: Sirius XM (NYSE:SIRI): Is this a buying opportunity?