Sirius XM hit an 11-year low on Tuesday. Things should get better from here.
Sirius XM Holdings (SIRI -1.16%) hit another brutal multiyear low on Tuesday. Shares of the satellite radio provider haven't traded this low since the fall of 2012. The stock has been cut by more than half -- down 52% -- this year. Sirius XM shares have shed more than two-thirds of their value since peaking last summer.
Business has certainly slowed at Sirius XM, but it doesn't mean that the stock can't bounce back as soon as this month. Let's go over some of the reasons why this media stock could turn the past year of pain into gains.
1. Sirius XM is too cheap
A bullish case for a stock that has fallen substantially this year isn't going out on much of a limb by arguing that it's cheap. You can buy a piece of Sirius XM for less than half of what you had to pay at the end of 2023. The business isn't half of what it used to be five months ago, nor a third of what it was 11 months ago.
However, we can quantify how cheap Sirius XM is right now. Organic revenue growth has been in the single digits for the last nine years, but top-line growth has flatlined now. The good news for value investors is that Sirius XM is trading for just 8 times trailing earnings.
Let's frame how different Sirius XM is now from the last time it traded at this price point. Trailing revenue is now nearly triple -- 164% higher -- than it was in 2012. Its operating profit has also more than doubled. Making matters even more interesting, Sirius XM has been generating 10-figure annual free cash flow for years now. Sirius XM has been using its consistent cash-generating power to return money to its shareholders through buybacks and distributions.
Sirius XM's share count is now 44% lower than it was in 2012. Its revenue and adjusted profit has more than quadrupled on a per-share basis. Sirius XM also initiated a payout policy in 2016 that has continued to inch higher over time. Put another way, the stock's 4.1% yield right now is the highest it's ever been. The stock's earnings and revenue multiples have never been as low as they are this week.
2. Folks are paying more for premium music services
It's an odd week for Sirius XM to be hitting its lowest price in more than a decade. Spotify (SPOT -3.54%) announced on Monday that it was increasing prices for its platform from $1 to $3 a month. It's been 15 months since Sirius XM last raised prices for its satellite radio service.
Premium streaming services in general are getting more expensive. This week alone we've seen Twitch and Max join Spotify in announcing price hikes for their premium platforms. This is actually good news for Sirius XM. Sirius XM's biggest competitor isn't free terrestrial radio anymore. The connected car pits it with streaming services, and Spotify is the top dog in that niche. If Spotify is getting more expensive, it either opens the door for Sirius XM to boost margins with a price increase of its own, or it holds its ground and catches listeners bailing from the platforms that are growing more costly.
3. Bullish catalysts are out there
Sirius XM is still relevant despite the ugly stock chart. It continues to entertain 33 million total subscribers in an era where boo birds figured no one would be paying for a live radio service. This isn't a fade out. Revenue growth may be unimpressive, but it has accelerated in back-to-back quarters.
How can the satellite radio monopoly get back on track? Let's start with this summer. A Deloitte study shows that 66% of American travelers have their sights set on a road trip this summer, up from 56% in 2023. As a product consumed primarily in the car, it obviously doesn't hurt that companies are calling employees back to in-office work. New car sales in the U.S. rose 5% in the first quarter of this year.
The stock seems stuck in reverse right now, but the fundamentals are telling a different story. The three reasons outlined above make Sirius XM a strong candidate to bounce back in June.
Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Spotify Technology. The Motley Fool has a disclosure policy.
