Is There a Future for Sirius XM?
Key Points
Sirius XM is likely to keep struggling to grow its revenues and subscriber base in a streaming world.
The fact that shares are so cheap reduces the risk for investors, but would-be buyers should move with caution.
- 10 stocks we like better than Sirius XM ›
Sirius XM (NASDAQ: SIRI) is a Berkshire Hathaway holding: The Warren Buffett conglomerate owns 37.1% of the company's outstanding shares, so the Oracle of Omaha might see something he likes about the company.
Berkshire's apparent endorsement, though, doesn't change the fact that Sirius XM's share price has dropped by 59% over the past five years. Its valuation is now quite cheap, at a forward price-to-earnings ratio of 7.4 -- which might pique the interest of some investors.
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But is there a future for Sirius XM?
Image source: Getty Images.
Sirius XM is on the wrong side of a major tech trend
Sirius XM is the only satellite radio operator still in business. However, it has faced major headwinds thanks to the advent of high-performance smartphones and better internet connectivity. The company's subscriber base and revenue have not grown meaningfully for years.
Meanwhile, popular audio streaming services from Apple, Spotify, Alphabet, and others have achieved tremendous success. This isn't going to change.
It's smart for investors to put their money into businesses benefiting from secular trends. Technological shifts can provide a long-term boost to such companies' customer, revenue, and earnings growth.
Unfortunately, Sirius XM doesn't fall into this category. Yes, its shares are cheap, and it produces positive free cash flow, but the company faces a difficult road ahead. Would-be investors should proceed with caution.
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Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Apple, Berkshire Hathaway, and Spotify Technology. The Motley Fool has a disclosure policy.
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