Not every stock trading at a single-digit share price is a speculative investment. True, many of them are -- but sometimes, you can find successful companies in that price range that just happen to be out of favor at the moment.
Consider, for example, SiriusXM Radio (SIRI -0.27%) and Tencent Music Entertainment (TME 1.27%). The two have a lot in common. They're leaders in next-gen music platforms in their home markets. Both also happen to be consistently profitable and trade for less than $10 a share. Let's turn up the volume to see what makes them investable earworms that you should consider adding to your portfolio this month.
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Sirius XM Radio
Satellite radio is bigger than ever. Sirius XM began this year with a record 32 million accounts. You might think that premium satellite radio wouldn't be a growth market considering that folks are still driving less in the new normal, and also considering how easy it is to connect a smartphone to your car's audio system and listen to streaming services that way. But neither of those headwinds have stymied Sirius XM. It has increased its self-pay subscribers by at least 1 million in all but one of the past 11 years. Management's guidance in February called for just half a million net additions this year, but that's still an expanding audience.
The stock trades at a low price because the company has such a large number of shares outstanding, but management is working on that situation. Sirius XM generated $1.83 billion in free cash flow last year, and it's returning most of that to its shareholders through dividends and -- more importantly in terms of share price -- stock buybacks. Sirius XM's outstanding share count peaked at nearly 6.9 billion in 2012, but it's down to nearly 4 billion now. You can buy Sirius XM for 20 times earnings or 18 times next year's expected earnings.
Tencent Music Entertainment
You don't typically see digital music platforms on lists of low-priced profitable companies, but Tencent Music Entertainment fits the bill. It's China's top dog in the niche, with 75% of the online music market in the world's most populous country, and it has always been profitable. Yes, traditional music streaming services are low-margin affairs due to the costs of licensing rights, royalty payments, and bandwidth. The key to Tencent Music Entertainment's healthy bottom line is a high-margin social karaoke platform and a potent digital economy of virtual gifts that people can send to their favorite performers.
Tencent Music Entertainment has a whopping 615 million monthly active users on mobile devices. Most of them are listening via the free ad-supported service, but Tencent's apps still have 76.2 million paying accounts for online music and 9 million paying users on the social entertainment side.
The company went public in late 2018 when it was spun out of Chinese tech giant Tencent, but its growth was already slowing at that point, and it has been slowing dramatically ever since:
- 2017 -- 152%
- 2018 -- 73%
- 2019 -- 34%
- 2020 -- 15%
- 2021 -- 7%
Making matters worse, revenue declined 9% in the fourth quarter. The social entertainment market is more competitive now, but analysts forecast a return to top-line growth by next year. The company is using its market leadership to beef up its original content offerings, and it's making an effort to play a larger role in launching new artists. In the meantime, Tencent Music Entertainment is trading for just 14 times adjusted earnings and 13 times next year's target. There are added risks inherent to investing in Chinese companies. It's also fair to say that music stocks can be fickle. However, when you hear that you can buy into a market leader at an earnings multiple in the low teens, that should be music to your ears.
