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Could Sirius XM Be a Millionaire-Maker Stock?

By Anders Bylund – May 26, 2020 at 9:47AM

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The satellite radio specialist is neither a great growth stock nor a deep-discount value play.

Satellite radio veteran Sirius XM (SIRI 1.88%) has made millionaires before. If you had invested $50,000 in Sirius at the end of 1994, that holding would have been worth more than a million dollars at the turn of the millennium.

Could you make a million dollars from a relatively small investment today? Let's have a look.

Is Sirius a sensational growth stock?

Sirius XM saw its annual revenues rise by 86% over the last five years. That works out to a compound annual average growth rate of 13%. Impressive stuff, right?

However, the buyout of music-streaming service Pandora accounted for the lion's share of that five-year top-line boost. Pandora added $1.6 billion to Sirius's sales last year. Without that massive shot of buyout-powered adrenaline, Sirius's annual growth would have stopped at just 8% in the last five years.

So the company's organic growth isn't exactly thrilling. Sirius' top-line growth can't hold a candle to fellow media stocks such as Netflix (NFLX 0.71%) or Spotify (SPOT 6.33%), which are generating their impressive results without any help from revenue-boosting buyouts:

SIRI Revenue (TTM) Chart

SIRI Revenue (TTM) data by YCharts.

What's missing?

Spotify and Netflix are trading at nosebleed valuations thanks to their inspiring top-line growth trends. Sirius carries a middle-of-the-road valuation of 23 times trailing earnings or 3 times trailing sales, like many slow-growing and mature stocks in the consumer goods sector. Nobody expects Colgate-Palmolive (CL 1.03%) or Kellogg's (K 1.48%) to turn a small investment into a million dollars, but that's roughly where Sirius' valuation sits today.

Sirius pays a dividend, but its 1% dividend yield falls far short of the 2.5% and 3.8% yields you'll get from Colgate and Kellogg's, respectively.

You might expect Sirius to skyrocket in the postcoronavirus world as millions of consumers turn to digital entertainment options, but that's not how the COVID-19 story is working out. The company added just 69,000 new self-paying customers in the first quarter, down from 131,000 in the year-ago period. You see, a large slice of the subscriber growth comes from Sirius trials included in car sales, and that market is crashing hard during the COVID-19 lockdown era.

A businessman turns away from the viewer, scratching his head over two arrows pointing in opposite directions.

Image source: Getty Images.

This stock won't make you a millionaire anytime soon

Any stock can be a millionaire maker if you hold it for several decades. The Dow Jones Industrial Average has grown 20-fold since 1985, turning a $50,000 investment into a cool million in 35 years. That's the kind of patience you'll need in order to make a million from a Sirius investment. And even then, you'd probably be better off tracking a lower-risk market index instead of a single company that might or might not be around in 2055. It's easy to find both quicker and safer paths to a million dollars than Sirius XM.

Anders Bylund owns shares of Netflix and Sirius XM Radio. The Motley Fool owns shares of and recommends Netflix and Spotify Technology. The Motley Fool recommends Sirius XM Radio. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Netflix, Inc. Stock Quote
Netflix, Inc.
NFLX
$240.74 (0.71%) $1.70
Sirius XM Holdings Inc. Stock Quote
Sirius XM Holdings Inc.
SIRI
$5.97 (1.88%) $0.11
Spotify Stock Quote
Spotify
SPOT
$94.63 (6.33%) $5.63
Kellogg Company Stock Quote
Kellogg Company
K
$72.12 (1.48%) $1.05
Colgate-Palmolive Company Stock Quote
Colgate-Palmolive Company
CL
$71.84 (1.03%) $0.73

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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