Sirius XM Holdings (NASDAQ: SIRI) has had a rough time of late, falling nearly 60% in value over the past 12 months. Yet, one of the most famous investors in history has been a keen buyer of the satellite and online radio company’s shares. Berkshire Hathaway, led by Warren Buffett, now holds a stake worth several billion dollars.
On many levels, the company’s valuation appears blatantly cheap. But from another perspective, shares are cheap for a reason. What exactly is going on? Should you also be adding Sirius XM stock to your portfolio in 2025? There are some issues that investors will want to understand first.
First, the company is struggling to grow its subscriber base. It is this figure that perhaps most influences its revenue growth trajectory. Last year, Sirius XM lost around 2% of its subscribers through the first three quarters. That explains the flattening revenue curve in the chart below.
The cause of this decline is multifold, but competition is the gorilla in the room. With seemingly countless numbers of music and radio streaming options, the allure of Sirius XM’s offerings isn’t nearly as attractive as in years past. With near total connectivity and 5G networks delivering instant downloads, people can choose any type of content at any time, often for free.
Second, flattening revenue growth has caused the stock’s price-to-sales multiple to gradually erode, from 5.5 times sales in 2015 to just 3 times sales in 2022. Right now, shares trade at just 1 times sales. Falling revenue, combined with a huge decline in price-to-sales multiple, has resulted in a dramatically lower stock price over the last few years, with the effects magnified over the trailing 12 months.
But before you give up on Sirius XM, you should know that one famous investor — perhaps the most famous investor of our time — seems to be betting on a turnaround.
Top-line results from Sirius XM don’t look good. But it seems as if Warren Buffett interprets another story unfolding. His holding company owned shares in 2023, when the stock was priced at roughly $40 per share. According to recent filings, that stake has grown steadily over time and is now worth around $2.4 billion. That’s 30% of Sirius XM’s total market capitalization.
What do Buffett and company see in Sirius XM shares? It’s likely a classic value play. While revenue is declining, the company is still generating plenty of free cash flow. With the exception of last quarter, the company is also still profitable. On a forward basis, shares trade at just 7 times 2025 expected earnings. Shares also trade just below 10 times free cash flow, suggesting a free cash flow yield of more than 10%.
