There's no sugarcoating how 2024 played out for Sirius XM Holdings (NASDAQ: SIRI) shareholders. It's been a rough year. However, there's a lot of truth to the old mutual fund disclaimer that past results aren't an indicator of future performance.
The satellite radio provider can bounce back in a major way in 2025. Let's go over some of the reasons this currently out-of-favor stock can roar back to life for investors in the months and years ahead.
1. The stock is cheap
There aren't a lot of inexpensive stocks out there. The market has rallied by more than 20% in back-to-back years. Even some ho-hum investments have run with the bulls. But Sirius XM has been left behind. The shares have plummeted 58% in 2024 heading into the final two trading days of the year.
Sirius XM is unreasonably if not unfashionably cheap. Analysts see the company delivering a profit of $3.05 a share in 2025. With its depressed share price, investors can pick up a piece of the satellite radio monopoly for a mere 7.6 times forward earnings.
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2. Warren Buffett thinks Sirius XM is cheap
Don't take my word for it when I say Sirius XM is cheap. Warren Buffett's Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) owns nearly a third of Sirius XM's outstanding shares. Buffett was a shareholder of the common stock as well as several of the tracking shares that offered a way to own a piece of the media giant at a discount.
Investors soured on Sirius XM after the tracking shares were converted into the common in early September. But Buffett's holding company seems to see an opportunity in the recent markdown, as Berkshire Hathaway bought more shares in October. Buffett then added nearly 5 million more shares to his sizable stake earlier this month.
3. Satellite radio is still popular
Sirius XM's subscriber base peaked at 34.9 million in 2019. Now there are 33.2 million accounts, a 5% decline since then. There are plenty of reasons for the slow fadeout at Sirius XM. Auto sales, the funnel of new accounts for the satellite radio, have been sluggish. A lot of people are still working from home, spending less time in their cars, where they'd make the most of a Sirius XM subscription. There is also no shortage of cheaper streaming apps that drivers can play through their Bluetooth car stereos.
That's a lot of headwinds for a platform that has shed an average of 1% annually over the past five years. But what if headwinds start becoming tailwinds? Companies are starting to call employees back to in-office work, and those morning and afternoon commutes need a soundtrack. Interest rates are meandering lower, too, making it easier to finance auto loans. The volume knob goes both ways here.
4. The naysayers are daring to be silenced
There are a lot of people betting against Sirius XM these days. The stock hit a 10-year high in short interest late last month, and it remains stubbornly high at nearly 6% of its outstanding shares.
Some will view the spike in bearish wagers for the stock to head lower as a negative, but this is also an opportunity to rally. The next whiff of positive news can send the shorts scrambling to cover their positions, a classic short squeeze. Sentiment favors the pessimists right now. Earlier this month, Sirius XM disappointed investors by initiating guidance for 2025, calling for a 2% decline in revenue. It would be the third consecutive year of negative top-line growth.
What would happen if subscriber or revenue growth turns positive? What if it continues to land up-and-coming podcasters -- like its deal for Alex Cooper's Call Me Daddy -- to its platform to woo younger listeners? What if its recent deal to make it easier for drivers of the country's best-selling electric cars starts to bear fruit? Don't let the stock chart of the past block your view of the potential catalysts of the future.
5. Sirius XM is a money machine
Patience is a virtue that Sirius XM shareholders can appreciate. The monopoly has consistently generated 10-figure free cash flow in each of the past few years, and it's returning a lot of it to investors. Sirius XM has been a voracious consumer of its own stock, having retired 42% of its outstanding shares since the count peaked in the fourth quarter of 2012.
Sirius XM also shells out a generous quarterly dividend. With the stock contracting and Sirius XM raising its payout every year since initiating its distributions, the yield now stands at a record high of 4.6%.
Income and value investors are hovering around the stock right now. Imagine what will happen if Buffett enthusiasts and growth investors warm up to this potential turnaround story in 2025.
* The content presented above, whether from a third party or not, is considered as general advice only. This article should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments.
