Five Compelling Motives to Purchase Sirius XM Shares Without Delay
2024 wasn't a sweet deal for Sirius XM Holdings (SIRI -1.32%) shareholders. It was a tough year, but as the saying goes, past performances don't necessarily predict future results.
The satellite radio provider has the potential to bounce back in a significant way in 2025. Let's explore some reasons why this currently undervalued stock could regain its charm for investors in the coming months and years.
1. The stock is undervalued
Finding inexpensive stocks these days is like finding a needle in a haystack. The market has surged by more than 20% in consecutive years. Even some unremarkable investments have joined the bull rally. However, Sirius XM has been left in the dust. Its shares have dipped by 58% in 2024 as we approach the last two trading days of the year.
Sirius XM is undervalued, even by conservative standards. Analysts anticipate the company will deliver earnings of $3.05 per share in 2025. With its diminished share price, investors can snap up a share of the satellite radio monopoly for a paltry 7.6 times its projected earnings.
2. Buffett backs Sirius XM
Don't just take my word for it. Berkshire Hathaway (BRK.A -0.39%) (BRK.B -0.56%), Warren Buffett's investment firm, owns a substantial chunk of Sirius XM's shares. Buffett was a shareholder in both the common stock and discussing shares that offered a cheaper entry point into the media giant.
Investors lost faith in Sirius XM after the discount shares were converted into common stock in early September. However, Buffett's holding company saw an opportunity in the markdown, as Berkshire Hathaway purchased more shares in October. Buffett then acquired an additional 4.9 million shares to augment his substantial stake earlier this month.
3. Satellite radio still has an audience
Sirius XM's subscriber base peaked at 34.9 million in 2019. Now, it stands at 33.2 million, a 5% decline since then. There are several reasons for the modest decline at Sirius XM. Auto sales, a key source of new subscribers, have slowed down. Many people are still working from home, reducing their time spent in cars, where a Sirius XM subscription could be most beneficial. There's also no shortage of cheaper streaming apps that drivers can access through their Bluetooth car stereos.
However, this could be about to change. Companies are calling employees back to the office, and those morning and afternoon commutes crave a soundtrack. Interest rates are also trending lower, making it easier to secure auto loans. These trends could potentially reverse the negative trends at Sirius XM.
4. The skeptics are set to fall silent
There are plenty of bears betting against Sirius XM right now. The stock reached a 10-year high in short interest towards the end of last month, and it remains stubbornly high at nearly 6% of its outstanding shares.
Some may view the surge in bearish bets as a negative, but it could also be an opportunity. A hint of positive news could cause these bears to scramble to cover their positions, triggering a classic short squeeze. At the moment, sentiment is heavily skewed towards the pessimists. Just a few weeks ago, Sirius XM disappointed investors by issuing guidance for 2025, projecting a 2% decline in revenue. This would mark the third consecutive year of negative revenue growth.
What if revenue growth turns positive? What if Sirius XM continues to sign up up-and-coming podcasters, such as its deal with Alex Cooper's Call Me Daddy, to attract younger listeners? What if its recent deal to make it easier for drivers of the best-selling electric cars to access its service starts to bear fruit? Don't let the stock's recent performance blind you to the potential catalysts of the future.
5. Sirius XM is a cash cow
Patience pays off for Sirius XM shareholders. The company has consistently generated billions in free cash flow each year, and it returns a significant portion of this to shareholders. Sirius XM has retired over 40% of its outstanding shares since reaching a peak in the fourth quarter of 2012.
Sirius XM also pays out a generous quarterly dividend. With the share price declining and Sirius XM increasing its dividend annually since initiating its payments, the yield now stands at a record high of 4.6%.
Income and value investors are keeping a close eye on the stock right now. Watch out for Buffett fans and growth investors warming up to this potential turnaround story in 2025.
- Given the current undervaluation of Sirius XM, investors might consider it an excellent opportunity for investing, as the company's projected earnings for 2025 are $3.05 per share, yet the share price is only 7.6 times that amount.
- With Warren Buffett's Berkshire Hathaway significantly investing in Sirius XM's shares, it suggests that the finance magnate believes in the company's potential for growth in the coming years, further strengthening the case for investors considering investing in Sirius XM.
