Sirius XM (SIRI +0.36%) has been on a wildly disappointing run for shareholders over the past five years: The stock has generated a total return of negative 59%.
It has been a difficult environment for the company to navigate. Technological innovation and disruptive forces are impacting the business, and it faces stiff competition from some powerful internet companies.
Does Sirius XM stock still belong in retail investors' portfolios?
Image source: Getty Images.
Sirius XM's value proposition is challenged
Sirius XM has a legal monopoly since it's the only satellite radio operator in the U.S. And when compared to terrestrial radio operators, it has nationwide coverage, better selection, and clear quality.
But the days of Sirius XM ruling the audio entertainment market are long gone. Blame it on the prevalence of widespread and faster internet connectivity, more capable smartphones, and intensifying competition from tech firms that want to capture even more of consumers' attention.
When it comes to audio entertainment, investors should be thinking about offerings from Spotify, Apple, and Alphabet. All of those services were built with mobile-first approaches, providing strong and cost-effective user experiences that have proven appealing to listeners, especially among younger audiences. Spotify alone has achieved an incredible level of adoption, with 713 million monthly active users.
Apple and Alphabet, meanwhile, are in advantageous positions that are eroding the in-car edge that Sirius XM once enjoyed. These tech giants control the top mobile operating systems, iOS and Android. And with Apple CarPlay and Android Auto, these two platforms connect seamlessly with vehicles.
NASDAQ: SIRI
Key Data Points
Don't bet against technological progress
Despite all this, some value investors might still be willing to take a chance on Sirius XM stock. That's because it trades at a cheap forward price-to-earnings ratio of 6.9. And it pays a hefty dividend that yields about 5.3% at the current share price.
Given the competitive landscape in the audio space, though, it makes sense that Sirius XM's business is declining. Revenue totaled over $2.1 billion in the third quarter, down less than 1% year over year. Analysts believe that the company's revenue will be flat from 2025 through 2027.
Its top-line softness has been driven by a gradual decline in the number of customers it serves. Sirius XM reported losing self-pay subscribers in eight of the last 11 quarters. It's obvious this business is on the wrong side of technological changes happening in the industry.
This leaves it a risky investment, even with its inexpensive valuation, and the danger is amplified by the state of its balance sheet. As of Sept. 30, the company carried a debt load of $10.1 billion. That's about 48% more than its entire market cap.
Investors would be better off avoiding this stock.
