Among dozens of stocks, berkshire hathaway's (NYSE: BRK.A) (NYSE: BRK.B) We have some amazing holdings in our portfolio. One name that stands out as an odd choice for Warren Buffett is SiriusXM Holdings (SIRI -1.80%). Satellite wireless carriers used to be a hotly contested field. Now, with the stock hovering in mid-single digit territory, it seems forgotten by growth and value investors alike, just fighting the ground.
Berkshire owns a small stake in SiriusXM itself and has an even larger position. Liberty Sirius XM (LSXMA -0.23%) (LSXMK -0.13%), tracking stocks have historically traded at a discount to the satellite radio monopoly's stocks. The two companies plan to merge into SiriusXM by the third quarter of this year.
You may be wondering why some think this will be the year SiriusXM goes parabolic, after years of slowing revenue growth and a nearly flat stock chart. unknown. Let's go for a drive. I hope you don't mind if I turn up the volume.
Around the dial
The company's fourth quarter results announced last week were not very positive. After years of slow but steady subscriber growth, Sirius XM's subscriber count has declined by 445,000. Revenue declined for the first time in the platform's 21-year history. In management's latest guidance, 2024 sales are expected to decline by 2%.
So now seems like the worst time to jump into Sirius XM, with low expectations already etched into the stock. The stock price has been declining for four consecutive years, and the stock price will continue to decline until 2024. The stock price has fallen 30% since the end of 2019. But SiriusXM is much more profitable now than it was then. Dividends have also increased every year.
All of this has resulted in the company's earnings multiple (less than 16) being the lowest it's ever been, and its dividend yield (2.1%) being the highest it's ever been.
That's not all. Sirius XM is a money machine. Dividends weren't the only way SiriusXM returned money to shareholders, as it generated $1.2 billion in free cash flow last year. The company also actively buys back its own shares. SiriusXM's outstanding shares have increased from a peak of 6.8 billion in summer 2011 to 3.9 billion today. There aren't many companies that have reduced their stock count by more than 40% over the past 10 years. This means that his earnings per share today are significantly higher.
step on the accelerator
It's not all good news. SiriusXM's debt burden is much higher than it was in 2011, when the stock was at its peak, and leverage is not a good idea at a time when borrowing costs are high. But let's talk about the business itself.
The popularity of the Sirius XM service has taken a hit since the pandemic for obvious reasons. Satellite radio is primarily consumed in the car, and people don't drive as much as they used to. It's amazing that even SiriusXM saw an increase in revenue in 2020, but even now, time spent on the open road is still decreasing. This should change.
More and more companies are bringing their employees back to work full-time in the office. Gasoline prices are down more than 30% from their 2022 peak. Business and leisure travel is also expected to increase this year, with more time spent in cars and rental cars with Sirius XM available for a fee.
As economic growth accelerates in 2024, the advertising market should also recover. Sirius XM has 33.9 million satellite radio subscribers, and while subscription revenue is more important to the company than advertising revenue, marketing is a bigger part of the growth story for the company's Pandora division. . He has over 46 million streaming users.
SiriusXM is an undervalued and misunderstood media stock. This platform survived the advent of connected cars and has now been ubiquitous for a decade. While many traditional media players are cutting back on content or losing billions of dollars on streaming, Sirius Sex is virtually guaranteed. This is a drop in a market that is at record highs.
In any given year, the biggest winners are often the companies and industries you never expected to lead the way. In 2024, SiriusXM could also become one of them.
Rick Munarriz has no position in any stocks mentioned. The Motley Fool has a position in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.