With meme stocks in the news this week it's a good time to revisit a similar battleground investment that dominated the online discussion board chatter a generation ago. It's been nearly eight years since the monthly trading volume of Sirius XM Holdings (SIRI 0.36%) topped 1 billion shares, and a dozen years before that it was a hotly contested penny stock.
The satellite radio provider has grown up into a surprisingly sleepy and predictable media giant. Is that good? Is that bad? Let's look at the bull and bear cases before deciding if this is time to buy, sell, or hold Sirius XM stock.
Buy Sirius XM
The bullish case for Sirius XM has to start at the bottom -- the bottom line, that is. Sirius XM went from being a speculative deficit-riddled stock two decades ago to one that has been consistently profitable since shortly after completing the combination of the country's two satellite radio platforms in the summer of 2008. It has posted an annual profit every year since 2010.
The model works. It expects to generate $2.7 billion in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) and $1.2 billion in free cash flow this year.
Despite fears of the connected car spelling the end for premium satellite radio, drivers still crave the live programming and curated playlists that Sirius XM offers with coast-to-coast coverage. Sirius XM is serving 33 million total subscribers. It also owns the popular Pandora streaming app it acquired in 2019 to have some skin in the digital space beyond the mobile app for streaming its flagship satellite radio broadcasts.
Image source: Getty Images.
Sell Sirius XM
The bearish case for Sirius XM has to start at the top -- the top line, that is. This is hardly the growth stock it was in its prime. Outside of the 2019 spike fueled by the Pandora acquisition, organic growth has been in the single digits for nine consecutive years. Revenue declined 0.6% last year, an unfortunate first for the company.
The pandemic understandably was a blow to Sirius XM. The platform relies on drivers spending time in their vehicles. Initial shelter-in-place mandates and the transformation of workplaces, learning institutions, and family gatherings into remote proxies took its toll on the popularity of Sirius XM. However, growth prospects haven't improved as the country returns to normal. It's telling that revenue declined in 2023, and not 2020 or 2021.
If the easing of the pandemic wasn't a catalyst for growth, it's hard to see what could be a spark in the short run here. Speaking of short runs, short interest hit an eight-year low earlier this month. In other words, a potential short squeeze isn't likely to happen anytime soon.
Hold Sirius XM
The lack of turnaround catalysts make this a tricky stock to recommend right now. The fundamentals are in a holding pattern, and Sirius XM's upside will be capped until things change for the better.
The good news is that I saved some of the more potent aspects of the bullish argument for the end to justify at least holding Sirius XM if you are already a shareholder. Sirius XM has done a couple of neat things with the 10-figure free cash flow it generates year after year. There's the dividend, of course. Sirius XM initiated quarterly distributions in late 2016, and the rate has gone up every year. The depressed shares are currently yielding a record 3.4%. Sirius XM is also starting to pay down its long-term debt since that bearish leverage peaked in 2022.
The real star in returning money to shareholders has been its share buybacks. Sirius XM's fully diluted share count has declined by a whopping 44% since peaking a dozen years ago. Bears will argue that the board overpaid for most of those repurchases, and I can't disagree. However, the impact on improving per-share profitability is undeniable. Sirius XM's trailing earnings of $0.34 a share is a record for the company, and it means the stock is now trading for just 9 times trailing earnings.
With Sirius XM using its money machine to offset its stagnant if not gradually fading business there are worse places to park your money than a media stock monopoly with a reliable and rising 3.4% yield trading at a single-digit earnings multiple. The upside and downside appear limited, so going with a hold seems like the best call here until Sirius XM turns the dial one way or the other.
