Shares of Sirius XM Holdings (SIRI 0.36%) are down about 59% in the past year and currently trading at a 52-week low. Underwhelming results from the satellite radio giant have raised concerns about whether the company can manage to turn the dial to the correct growth station.
Nevertheless, stock market volatility can sometimes present investors with a compelling opportunity to pick up the pieces of a solid company at a deep discount ahead of a potential turnaround. Is that the case with Sirius XM right now?
Here are three things you should know before buying this stock.
1. Sirius XM faces intense competition
Sirius XM is attempting to navigate a challenging operating environment where satellite radio has largely fallen out of favor. The company faces an uphill battle convincing new listeners to embrace its premium pricing when internet-connected mobile devices most users already have provide numerous streaming audio alternatives.
The competition is not only from platforms like Spotify Technologies, but also music services from Apple and Amazon.
Sirius XM is betting on more original programming, podcasts, curated content, and exclusive sports broadcasting as a differentiator to pull in listeners and drive growth. Unfortunately, the trends have left a lot to be desired and help explain why the company’s stock has performed so poorly. The company’s current 33.2 million paying subscribers for its core platform have steadily declined in recent years; that number is down about 2% over the past year. The trends from the smaller-streaming Pandora segment and other off-platform services haven’t been any better, with active users down 6% year over year as of Sept. 30.
Image source: Getty Images.
2. The stock appears cheap, possibly for a good reason
What jumps out when looking at Sirius XM as an investment is its compelling valuation. The stock is trading at under 7 times the average Wall Street analyst estimate for company 2025 earnings per share (EPS) of $3.03 as a forward price-to-earnings (P/E) ratio. While this level represents a deep discount to the broader stock market, there’s a case to be made that the closeout-type earnings multiple is justified given the company’s ongoing weakness.
In December, Sirius XM provided 2025 guidance, projecting a 1% decline in revenue compared to the 2024 estimate. Similarly, the company’s target for $1 billion in free cash flow this year is below the 2024 outlook. Efforts to support profitability through efficiency and cost savings initiatives are a step in the right direction, but what the market wants to see is stronger growth. The cheap valuation for shares of Sirius XM could reflect an underlying skepticism in the market that the company will continue to struggle to bring in and retain subscribers. There is a lot of uncertainty about where the company will be three to five years from now.
3. The dividend is sustainable
If there is a silver lining for investors, shares of Sirius XM currently yield 5.1% through its $0.27 per-share quarterly dividend. Comments by company management have reaffirmed a commitment to maintain the shareholder distribution annualized to an approximate $350 million payout, which is more than covered by the positive free cash flow.
On the other hand, it’s unclear if that yield is enough to compensate for the company risk, which is an important consideration for investors to balance. Buying a stock to collect the high-yield dividend may seem like a no-brainer, but the yield can just as easily climb as the stock price falls further. Overall company fundamentals appear stable, but that alone does not make the stock a buy now.
SIRI Dividend Yield data by YCharts
Final thoughts
2025 will be a critical year for Sirius XM to get back on track and help rebuild investor confidence. The market will be closely following Sirius XM’s fourth-quarter earnings update on Jan. 30. Beyond the headline financial numbers, more important will likely be performance metrics such as the number of self-pay net subscriber additions and average revenue per user (ARPU) as key measures of the company’s operating momentum.
I predict shares will remain volatile until there is real evidence of more consistent profitable growth. Recognizing the lingering uncertainties, investors should avoid the stock for now and look for better opportunities elsewhere in the stock market.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Dan Victor has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Apple, and Spotify Technology. The Motley Fool has a disclosure policy.
