Investors may not know what to make of Sirius XM Holdings (SIRI +0.26%) stock. The company has what amounts to a legal monopoly for satellite radio in the U.S. Nonetheless, this does not include internet-based media, meaning its satellite-based domination has not eliminated its competition.
Warren Buffett's Berkshire Hathaway has taken a greater interest in the stock despite its flat subscriber numbers, but so far, that has not boosted its stock significantly. But does that mean Sirius XM stock will deliver returns for investors, or is it a media stock they should avoid? Let's take a closer look.
The state of Sirius XM
Sirius XM is a stock of contrasts. On the surface, it might offer some attributes that interest investors. Its niche in satellite radio makes it a popular option for drivers, particularly those who spend hours per day driving long distances and want radio stations that don't lose signal as they travel from city to city.
Moreover, the stock offers some benefits, one of which is its dividend. At $1.08 per share annually, it returns a dividend yield of 4.3% as of the time of this writing, and one that tends to rise annually. That is far above the 1.2% average yield of the S&P 500 (^GSPC 0.38%).
Additionally, the stock's low valuation may surprise some investors. Its P/E ratio is around 8, a level near multiyear lows. That current valuation leaves little room for downside, which could make it attractive to some investors.
However, the stock is likely also cheap for a reason. In 2024, its revenue of $8.7 billion dropped 3%. Even though 33 million subscribe to its service, that number fell by 1% year over year.
Also, Sirius XM faces more competition from streaming services. The company has tried to mitigate competitive threats by focusing on the auto market. Nonetheless, that has left the stock without an obvious source of meaningful revenue growth.
Unfortunately, its financials also faced pressure due to a $3.5 billion restructuring charge amid its merger with Liberty Media last year. That led to a net loss in 2024 of $2.1 billion, down from its $988 million profit in 2023. With that financial performance, the stock has gained little traction recently.
NASDAQ: SIRI
Key Data Points
Sirius XM and Berkshire Hathaway
None of these factors have stopped Berkshire Hathaway from adding to its position in Sirius XM stock, which increased by 12% in the fourth quarter alone. As a result, it holds more than 117 million shares, about 35% of the company's outstanding shares.
This is notable since Berkshire has become a net seller of stock in recent quarters. However, Berkshire's reason for this interest may be unique to the company. Today, its market cap exceeds $1 trillion, and it holds around $325 billion in liquidity, indicating that it cannot find many investments it finds suitable.
Given Sirius XM's financial condition, Berkshire is unlikely to earn eye-popping returns from this stock. What Sirius XM does offer is the aforementioned 4.3% dividend yield at 8 times earnings. Thus, Berkshire can collect on the dividend, and with its valuation more likely to rise than fall under current conditions, it may benefit from additional growth, increasing its odds of beating the S&P 500.
Indeed, income investors interested in preserving wealth and earning some cash may gravitate to Sirius XM. Such a strategy may not be of interest to growth-oriented investors, but ultimately, one has to think like Buffett and his team if they want to understand such investments.
Should I buy Sirius XM stock?
The decision to buy Sirius XM should depend on your investment strategy. If you're looking for growth, you can probably find more appealing prospects in a different stock.
However, investors should also understand the wealth preservation case for owning Sirius XM stock. If you seek income, the company's return on its payout are more than triple that of the S&P 500 average, making it an excellent choice for dividend investors. Also, the low P/E ratio lowers the risk of stock price declines, and increases the likelihood that the stock can grow from a rising earnings multiple, particularly in the long term.
Thus, if investing for income or wealth preservation, one can make a case for buying Sirius XM stock.
