This year’s market correction sent many stocks sliding, creating opportunities to pick up shares of some good companies at a discount. Sirius XM Holdings(NASDAQ: SIRI) is one such business, but its stock was struggling well before this latest period of market volatility.
Its shares are down about 40% over the past 12 months through the week ended March 21. In fact, Sirius XM stock hit a 52-week low of $20.47 in December.
Warren Buffett’s Berkshire Hathaway took advantage, swooping in to buy Sirius XM shares. Based on its latest Securities and Exchange Commission filing on that holding, the conglomerate now owns a 35% stake in it.
Should you also invest in Sirius XM? Here are three reasons why buying its stock could make sense for investors who are willing to hold shares for the long term.
One of Sirius XM’s strengths is that its business is bolstered by recurring revenue from subscriptions. Of its $8.7 billion in 2024 sales, $6.6 billion came from satellite radio subscriptions.
That represents a fairly reliable and predictable revenue stream that’s less exposed to seasonal ups and downs. Solidifying this revenue stream is that Sirius XM has a monopoly in its niche: It’s the only satellite radio broadcaster in the U.S. today.
Because 90% of subscribers use the service in their cars, Sirius XM is focused on expanding its automotive strength. In December, it was integrated into the infotainment systems of Tesla‘s Model 3, Cybertruck, and Model Y, which was the best-selling vehicle in the world last year.
Sirius XM also brought in $1.8 billion from advertising last year, primarily through its Pandora music streaming service. Ad sales for its podcast content grew by 24% year over year in Q4.
Sirius XM’s steady subscription sales support its dividend, which is a key piece of the investment thesis for the stock. The company has a multi-year track record of paying dividends, and it has bumped up its quarterly payments annually since 2017, making it an appealing stock for income investors. (It also paid a one-time special dividend in February 2022.)
At the current share price, the dividend yield is a beefy 4.7%. Sirius XM can maintain and grow its payouts thanks to the substantial free cash flow (FCF) generated by its business.
The company has produced over $1 billion in FCF in each of the past seven years. Last year’s FCF of $1.02 billion easily covered its dividend payments of $143 million, leaving plenty of cash for Sirius XM to invest in its business, pay down debt, and repurchase shares.
The business expects its streak of robust FCF to extend into 2025. Management is forecasting $1.2 billion in free cash flow for the year.
The third factor making Sirius XM a compelling investment is that the stock looks cheap these days. Warren Buffett is a renowned value investor, so it’s little wonder he (or his investment managers) found the shares appealing.
A stock’s price-to-earnings (P/E) ratio shows how much investors are willing to pay for a dollar’s worth of that company’s earnings. Sirius XM’s P/E ratio is around a multi-year low, which suggests the stock is a good value right now.
But while there are good arguments for investing in Sirius XM, caveats exist as well. After all, there are reasons why the stock is hovering near a 52-week low.
A key factor is that its 2024 revenue of $8.7 billion was down 3% from 2023’s $8.9 billion. That decline was due to its loss of 296,000 net self-pay subscribers last year. The company expects sales to continue to slide in 2025, coming in at $8.5 billion.
On the bright side, Sirius XM CEO Jennifer Witz stated, “We would expect our subscriber results in 2025 to be slightly better than what we saw in 2024.” It added 149,000 subscribers in Q4, a sign of subscriber stabilization.
The company produces a wide range of content to draw customers in. For example, it’s the exclusive home to Lady Gaga’s first radio channel, and it’s broadcasting the NCAA basketball playoffs.
If you have conviction that Sirius XM can strengthen its business over time, then now would be a good time to invest in it. And while you wait for its share price to rise, you can collect a hearty dividend backed by consistent FCF and subscription revenue.
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Robert Izquierdo has positions in Sirius XM and Tesla. The Motley Fool has positions in and recommends Berkshire Hathaway and Tesla. The Motley Fool has a disclosure policy.
