Satellite-radio operator Sirius XM Holdings (SIRI) has made for an underwhelming investment in recent years. Its shares are down more than 21% since 2021. Investors appear to have given up on the company as a potential growth investment. And there is no shortage of people betting on its failure, as short interest has been rising.
Is Sirius XM a stock that can prove its doubters wrong, or is it destined to fall even further?
Sirius XM's business isn't growing
Sirius XM posted its full-year 2023 results earlier this month, and sales of just under $9 billion showed minimal growth from 2022. Its operating expense also looked largely unchanged at around $7 billion. A decrease in income tax expense was the main reason the company's earnings of $1.3 billion rose by 4%. The company did generate a solid 14% profit margin for the year. And it brought in free cash flow of $1.2 billion.
But it's hard to call this much of a growth stock these days. For 2024, Sirius XM expects revenue of less than $8.8 billion, and free cash flow should remain unchanged. This is even as the company looks to find $200 million in cost savings by optimizing programming and marketing efforts.
What's troubling is that Sirius XM's lack of revenue growth is not a new problem -- it has been declining for multiple years.
SIRI Revenue (Quarterly YoY Growth) data by YCharts
More headwinds coming for Sirius XM?
One of the things weighing on Sirius XM's stock in recent years is an increase in the percentage of shorted shares versus its float. Now at more than 27%, this has become a heavily shorted stock, indicating that many investors are expecting it to underperform the markets.
SIRI Percent of Float Short data by YCharts
The company's lackluster growth and guidance could give short-sellers more of a reason to remain bearish on the stock's prospects. Furthermore, if the satellite-radio company can't benefit from an uptick in travel in the past couple of years, there may not be much hope of a better performance should a recession hit this year and people look to trim their budgets.
A subscription to satellite radio could be an easy expense for households to justify cutting. Last year, there was a 1% decline in the number of Sirius XM subscribers and a 3% drop in monthly active Pandora users.
Sirius XM's valuation is cheap, but for good reason
Sirius XM stock trades at just 15 times earnings, which is a modest multiple; the average stock on the S&P 500 trades at a multiple of 22. But with poor growth prospects and declining sales, there's little reason for investors to justify paying any premium for the stock whatsoever.
The stock also has $8.7 billion of long-term debt on its books and current liabilities as of the end of last year topped $3.2 billion. While the company does expect to generate free cash flow, its cash and cash equivalents balance sits at just $216 million. Sirius XM has a long road ahead in bringing down its debt, while also paying a dividend and trying to find ways to grow its business.
It doesn't paint a terribly optimistic future path for the business.
Investors are better off avoiding Sirius XM
There's not a whole lot of reason to get excited about the Sirius XM stock right now. It's cheap, but it's not growing, it has a mountain of debt, and in a world of countless podcasts and streaming options that can be downloaded and played on the road, I'm not sure it has the moat necessary to be a good buy in the long run.
Investors shouldn't expect on a recovery from this stock anytime soon. The short-sellers may end up being right in this case. Sirius XM isn't a growth stock and dividend investors can get larger payouts than the 2.2% yield it offers. Investors are better off looking at stocks with more much potential upside.
