Investors have closely watched Berkshire Hathaway's moves. That's why Sirius XM (SIRI 1.08%), of which the conglomerate owns 37.1%, is an interesting business to look at, even though it hasn't been a winner.
Over the past five years, shares in the satellite radio operator have tanked 63% (as of Jan. 9). This is a very discouraging trend that can make investors lose hope. Perhaps it's time to look elsewhere when thinking about places to park capital.
Should you forget Sirius XM? There's another stock that has made far more millionaires.
Image source: Getty Images.
Sirius XM has a growth problem
Sirius XM's disappointing stock performance masks some positive factors. One is the revenue mix. In the third quarter (ended Sept. 30), the business collected $1.6 billion just from subscription sales. This accounted for 75% of its entire revenue base. Every company can appreciate a predictable and recurring money-making stream like this, with there being less dependence on cyclical advertising sales.
Besides Sirius XM being consistently profitable, it also rakes in sizable free cash flow (FCF). The consensus view among the sell-side analyst community is that they expect FCF to rise from $1.2 billion in 2025 to $1.5 billion in 2027. This could fund dividends and share repurchases.
Shares are also dirt cheap, trading at a forward price-to-earnings (P/E) ratio of 7.2. And the stock offers a high dividend yield of 4.96%. These are attractive qualities for interested investors.
However, Sirius XM has a growth issue. Revenue dipped in Q3 compared to the same period of 2024. And the company lost 262,000 self-pay subscribers in the trailing-12-month period.
The business is having trouble signing up new customers due to intense competition from streaming platforms like those of Apple, Spotify, and Alphabet. It's hard to argue with their value proposition, which provides cost-effective options with great user experiences and a wide selection. This just means Sirius XM has an uphill battle to ignite growth.
NASDAQ: AMZN
Key Data Points
Amazon has long been a dominant force
The stock that investors should instead pay attention to is Amazon (AMZN 0.87%). It has certainly made far more millionaires than Sirius XM. The top tech stock has soared 10,240% in the past two decades. All you had to do was invest $10,000 in early January 2006, and you'd have $1 million in your brokerage account right now.
A company doesn't generate such an outstanding return for no reason. One factor supporting Amazon is its durable growth, which contrasts with the decline Sirius XM has experienced. Amazon has benefited from some powerful secular trends in the past. And these will propel it going forward. This includes e-commerce, digital advertising, cloud computing, and, most recently, artificial intelligence (AI).
Amazon raked in $180 billion in revenue in Q3, up 13% year over year. But faster gains are coming from Amazon Web Services (AWS), with sales rising 20% in the third quarter. Management mentioned that the business is seeing incredible demand from customers for AI-powered solutions. As a leading cloud infrastructure provider, AWS is poised to be a winner in the AI race.
Unsurprisingly, Amazon's valuation is not even close to being as cheap as Sirius XM's. Investors can buy the former at a forward P/E ratio of 30.1. On the surface, this doesn't look like a bargain. However, Amazon doesn't necessarily optimize its business to generate robust profits. Instead, it focuses intensely on reinvesting in growth opportunities. Based on different valuation metrics, it can be argued that the stock presents an attractive deal right now.
The choice is clear. It's time to forget about Sirius XM. Amazon was a millionaire maker in the past. And looking ahead, it's the better stock to add to your portfolio.
