Anytime Warren Buffett makes a move, the entire investing world watches closely. So it makes sense that investors might be interested in buying shares of Sirius XM (SIRI 0.93%). Buffett's conglomerate Berkshire Hathaway owns 35.4% of the satellite radio operator.
However, Sirius XM stock has been a dud, generating a total return of negative 55% in the past five years (as of June 26). At the same time, the S&P 500 index put together a total return of 113% in that period.
Should investors forget about Sirius XM altogether? A different stock has made far more millionaires.
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The thesis for SiriusXM stock
When Buffett and his team decide to buy a large stake in a business, investors should take the time to understand the reasoning behind such a decision. I believe there are some key factors that might make Sirius XM a stock worth considering.
For starters, the business collects a recurring revenue stream from subscriptions. In the first quarter (ended March 31), 77% of its overall sales were derived from subscriptions. Management at least has some visibility when it comes to forecasting financial performance into the future.
Sirius XM is the only satellite radio provider in the U.S. Therefore, it has a legal monopoly. This creates a durable competitive strength supporting the business, which is a feature I'm sure encourages Buffett. There aren't direct rivals to Sirius XM, although there is competition from streaming platforms.
And for what it's worth, the leadership team is driving expense reductions, which could lead to higher free cash flow. The stock is cheap at a forward price-to-earnings (P/E) ratio of 7.9, with a healthy dividend yield of 4.81%.
However, the business is not growing. In Q1, Sirius XM's domestic subscribers were down 2% year over year, revenue was down 4%, and net income was down 15%. The market clearly isn't happy with this trend.
Maybe it's time to buy this millionaire maker
Sirius XM continues to be a huge disappointment for its shareholders, so it might be time to switch gears and focus on a proven winner. Just look at Amazon (AMZN -1.29%), whose shares have catapulted 12,000% higher in the past two decades. A $8,300 investment made in the tech giant in June 2005 would be worth $1 million today.
There are three main reasons to believe that Amazon can continue being a winner for investors. The most obvious is that the company benefits from numerous secular trends. Amazon is able to grow revenue on the backs of online shopping, digital advertising, cloud computing, and artificial intelligence. At the same time, Sirius XM is facing an uphill battle going against streaming services.
Another reason is that Amazon's profits are soaring. Operating income jumped 86% year over year in 2024, before rising 20% in Q1. And looking ahead, analysts think Amazon's bottom line will grow at a faster rate than revenue, which underscores the company's ability to optimize costs.
Despite the stock crushing the market, the valuation is reasonable. Investors can buy Amazon shares at a forward P/E ratio of 34.1. Given the company's dominance, its ability to constantly innovate and enter new markets, and its renewed focus on profitability, it's time to consider making an investment in Amazon.
It can be difficult to forget about a stock that Warren Buffett and Berkshire Hathaway seem to favor. But sometimes it's best to pay attention to the winners that are right in front of you. Amazon is more deserving of your capital than Sirius XM.
