There are some extremely attractive stocks in Berkshire Hathaway's (BRK.A -0.21%) (BRK.B -0.34%) closely followed stock portfolio right now. However, to say that some of them could go parabolic, or increase exponentially, could be a bit too optimistic. For example, Amazon.com (NASDAQ: AMZN) is one of my favorite Buffett stocks, but with a roughly $2 trillion valuation, it isn't likely to produce massive gains in a short time frame.
On the other hand, some of the companies in Buffett's portfolio are small enough that they could certainly produce parabolic returns under the right circumstances. While there's no way to predict with accuracy which stocks will produce massive returns over any given period, one that could certainly achieve parabolic returns under the right circumstances is SiriusXM Holdings (SIRI -2.75%).
One of the worst-performing Buffett stocks
SiriusXM declined by about 57% in 2024, and that was during a year when the stock market was generally doing well. And it isn't hard to see why the stock has underperformed. Sirius' revenue had been flat for a few years before it started to decline in recent quarters. Plus, SiriusXM's subscriber base peaked in 2019 and remains significantly below that level.
The recent numbers don't exactly paint an encouraging picture. Total revenue declined by 4% year over year in the first quarter, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) and net income both declined. The company saw a decline of 303,000 paid subscribers.
Image source: Getty Images.
Several potential growth catalysts
SiriusXM's management team is doubling down on its efforts to expand margins and sees potential to improve the subscription product and boost ad revenue.
On the product side, the company recently started offering a three-year dealer-sold subscription plan, which is performing rather well so far. SiriusXM launched its service in both Tesla and Rivian vehicles in December. Management also aims to make improvements to its marketing efforts that could cost subscribers initially but will result in a more sustainable long-term trajectory for the business.
Sirius is also doubling down on its content, adding more live event coverage, embracing more popular podcasts, and creating new and engaging channels in partnership with popular artists and entertainers.
When it comes to efficiency, SiriusXM anticipates reaching its target of $200 million in annualized cost savings by the end of 2025 (the process has been going on since 2023).
Between improvements in both product and efficiency, Sirius believes it can increase free cash flow to $1.5 billion annually by 2027, a 30% increase compared to its 2025 guidance of $1.15 billion.
Why SiriusXM could go parabolic
After its recent underperformance, SiriusXM trades for less than 8 times forward earnings, which indicates that the market doesn't have too much faith in its long-term prospects. It is priced like a company with steadily declining revenue, and to be fair, that's exactly what it is.
However, it's important to keep in mind that management isn't exactly asleep at the wheel. If some of the plans to return SiriusXM to growth while simultaneously improving profitability start to show results, the company could start to trade at a much higher valuation. After all, SiriusXM traded for nearly 150% more than its current price as recently as early 2024, and that was at a time when the business's revenue had already started to decline.
As 2025 goes on, we should start to get a sense of whether management's cost-cutting efforts are resulting in higher profitability, and if some of the new growth initiatives are starting to bring new subscribers into the business. If that ends up being the case, this could be an excellent performer for patient investors.
