Warren Buffett-led Berkshire Hathaway is clearly bullish on Sirius XM (SIRI +0.94%). The conglomerate owns almost 125 million shares, giving it a 37.1% stake in the satellite radio operator. When an investing legend like Buffett owns a business, average investors take notice.
Sirius XM definitely has some attractive qualities. However, there are reasons to be bearish as well. Should investors forget about this company?
Here's why you might want to buy this unstoppable growth stock instead.
Image source: Amazon.
The good and the bad with Sirius XM
Sirius XM expects to generate $1.15 billion in free cash flow (FCF) in 2025, a figure that the leadership team believes will increase 30% to $1.5 billion in 2027. This is clearly an encouraging trend. That cash helps fund a sizable dividend yield of 4.96%, which can be very interesting to income investors.
As a subscription business, Sirius XM benefits from collecting a recurring revenue stream. Subscriptions, which are stable and predictable, make up about three-fourths of total revenue. Advertising is the bulk of the rest, but this can be somewhat cyclical.
Investors might struggle to ignore how cheap the valuation is. Shares trade at a forward price-to-earnings (P/E) ratio of 7.4 (as of Oct. 20). Should that FCF figure rise as hoped, the market could rerate the stock, leading to valuation expansion.
However, there's a reason the Sirius XM's stock price has tanked 62% in the past five years. From a fundamentals perspective, it's hard to be optimistic. Sirius XM is facing an uphill battle, as it's on the wrong side of technological change. Faster internet speeds and broader connectivity, coupled with how advanced smartphones are these days, has helped launch popular streaming services that are finding great success.
Sirius XM's subscriber and revenue bases are struggling mightily to grow. Investors might be better off forgetting about this business.
NASDAQ: AMZN
Key Data Points
This growth stock has generated monster wealth
In the past 10- and 20-year periods, Amazon (AMZN +1.49%) shares have produced huge gains of 651% and 9,290%, respectively. Berkshire has a position in the business, amounting to $2.2 billion of the tech giant's outstanding shares. Amazon is a fantastic business that is certainly more deserving of investor capital than Sirius XM is. There are important reasons why.
I view Amazon as the ultimate growth stock. It's not putting up the biggest gains, but the revenue growth is durable. It's still finding ways to increase the top line, even though it posted $638 billion in sales in 2024. While Sirius XM continues to be challenged by tech headwinds, Amazon is lifted by secular tailwinds. It benefits from online shopping and streaming entertainment, for instance, both expanding end markets.
Amazon is also the leader when it comes to cloud computing. Amazon Web Services (AWS) commands 30% of the industry's market share. Its growth fuels profitability for the overall business.
The rise of artificial intelligence (AI) once again shines the spotlight on AWS. Companies of all sizes and in all industries are looking to build with this technology. And AWS offers a wide range of AI-related products and services, making it a key partner for those leveraging the power of AI to become more efficient or find new ways to serve their end users.
Amazon stock trades for a reasonable valuation. The recent forward P/E multiple of 28.6 presents a good deal to buy one of the world's elite companies. That view is supported by Amazon's wide economic moat that stems from its sustainable competitive strengths, including its cost advantage and network effect.
According to Wall Street consensus analyst estimates, Amazon's earnings per share are projected to rise at a compound annual rate of 19% between 2024 and 2027. This forecast is yet another reason to buy Amazon and forget about Sirius XM.
