To say that SiriusXM (SIRI +0.80%) has underperformed the stock market would be a big understatement. The stock declined by nearly 60% in 2024 -- a year when the S&P 500 increased by more than 20%. While the stock is up 5% this year, it's mainly due to a sharp rally in February when it was revealed that Warren Buffett's Berkshire Hathaway (BRK.A +0.10%)(BRK.B +0.06%) had increased its stake to about 35%. Since the February peak, it is down by 11%.
Having said all that, SiriusXM simply looks too cheap to ignore at this point. The stock trades for a single-digit multiple of expected 2025 earnings despite excellent profitability and several reasons to believe its earnings could grow significantly in the coming years.
NASDAQ: SIRI
Key Data Points
SiriusXM is down for a reason
First, there are some valid reasons behind SiriusXM's poor stock performance. For one thing, it has produced no substantial revenue growth since 2021, and its subscriber base peaked in 2019. The company actually expects revenue to slightly fall in 2025.
It's also important to note that Howard Stern, whose show is an extremely popular driver of subscribers at SiriusXM, has a contract that is set to expire in 2025. While we don't know what will happen, Stern is 71 years old, and there's a real chance he will decide to retire, However, the focus on adding popular podcasts could make up for at least some of the negative effects (more on that in a bit).
There's a lot to like
SiriusXM is a highly profitable business with high-margin subscription revenue, and it has done a fantastic job of cutting costs and boosting cash flow recently.
SiriusXM has also done an excellent job of doubling down on its exclusive content. Podcasts have been a big focus recently, and the company signed major deals for the popular SmartLess and Call Her Daddy podcasts. The company is also continuously offering new channels to appeal to listeners, such as the recent launch of Lady Gaga's channel GAGA RADIO, and expanding partnerships with sports leagues and other content providers. For example, SiriusXM recently extended its partnership with Formula One.
The company is also taking big steps to return its subscriber base to growth. For example, there is now a free ad-supported service that is available with certain new vehicles, as well as a dealer-sold 3-year subscription plan. And as interest rates (hopefully) come down over the next few years, it could create a nice tailwind for new vehicle sales, which is SiriusXM's biggest pathway to new subscribers.
A cheap stock if management can execute
In all, SiriusXM's management sees the opportunity to add 10 million subscribers over the next few years, which would create the largest subscriber base the company has ever had. Thanks to the combination of this and the company's efficiency efforts, it expects a 30% increase in free cash flow by 2027, compared with expected 2025 levels.
At the current price, SiriusXM trades for less than eight times forward earnings expectations. Plus, the stock has a 4.5% dividend yield, which is well covered by the company's net income. If management can execute on its turnaround strategy, this could be an excellent total return stock for patient investors.
