It's not a name that's on most investors' radars. Aside from its seemingly unusual business model, the company's relatively small size and anemic growth means it just doesn't turn many heads.
Value-minded investors, however, might want to put Sirius XM Holdings (NASDAQ: SIRI) on their radars, if not in their portfolios. You might also want to do so sooner than later. While it's seemingly on the ropes right now, as the cliché reminds, it's always darkest before dawn. Or as another cliché explains, expect it when you least expect it.
What does Sirius XM do?
On the off-chance you're reading this and don't already know, Sirius XM is a satellite radio company. Rather than using a conventional radio antenna, Sirius XM delivers music and talk programming to paying subscribers who own equipment capable of receiving a digital signal from ... well, from outer space.
It seems a bit unnecessary now, in light of mobile broadband and in-car interfaces that can play someone's preferred audio entertainment just by connecting their smartphone to their vehicle. Sirius XM also owns online music platform Pandora, in fact, seemingly supporting its top form of competition.
To this end, the company's revenue has stalled -- and perhaps even been shrinking -- since early 2023 when the world finally began shaking off the impact of the COVID-19 pandemic. That's also when the stock began what would ultimately turn into a 64% setback.
Nevertheless, there are clear reasons to scoop up this stock, and now even more so. Three stand out among the rest.
1. Sirius XM stock is deeply discounted
While the 64% discount is attention-getting, that alone doesn't make a stock worth owning; plenty of sinking stocks deserve their shrinking price.
Sirius XM doesn't appear to be one of these tickers, however, at least according to the analyst community. Analysts' current consensus target price stands at $30.92, which is 33% above the stock's present price. Clearly, these professionals see something most investors don't at this time.
That's not the only measure by which Sirius XM stock is undervalued, however. Its forward-looking price/earnings ratio of only around 8 is as low as it's been in several years.
2. Its dividend profile is attractive
The stock's recent weakness has upped its forward-looking dividend yield to an impressive 4.5%. You'd be hard pressed to find a better yield from a stock of this ilk and caliber.
Perhaps more important, the underlying dividend behind that yield is well protected.
See, subscription-based businesses are ideally suited for funding dividends. Consumers pay their nominal monthly fee like clockwork, providing the company with a predictable top line. Ditto for Sirius XM's advertising business, which accounts for about one-fifth of the company's total revenue. Given that its programming and operating costs are similarly predictable from one quarter and one year to the next, the operating profit margins of around 25% that fund these dividend payments are reliable as well.
And the proof is in the numbers: Not only has the company paid a quarterly dividend like clockwork since 2017, but has raised it every year since then.
3. The business model (and mix) works
Last but not least -- and perhaps most important -- this business model still works.
It's a claim that might catch some investors by surprise. As noted, the internet offers a virtual universe of entertainment and infotainment, with much of it being free to access.
That's not actually Sirius XM's core business, however. This platform's value is actually its on-air talent and exclusive programming that consumers are willing to pay a premium to hear.
For instance, popular shock-jock Howard Stern's show is only available to Sirius XM subscribers, and Stern recently interviewed presidential candidate Kamala Harris. Its programming is also now available as streaming content via apps found on a number of ordinary web-connected devices -- no special equipment needed. The same goes for Pandora.
Both platforms offer a cost-effective means of accessing very specific genres of music and talk that just isn't as possible with other services.
Not necessarily right for everyone's stock portfolio
That being said, Sirius XM stock might not be right for everyone. There is risk here that you'll want to keep an eye on. That is, although it's not exactly imploding, the company's customer head count has been dwindling from its 2021 peak. That's likely got a lot to do with the wind-down of the COVID-19 pandemic and the resumption of normalcy at that time, negating at least some of the demand for at-home entertainment.
Obviously, this contraction needs to stop sooner than later, but you'll need to keep an eye on Sirius XM's quarterly reports to see when-and-if that's actually happening. If keeping regular tabs on your holdings just isn't your thing, you may want to consider other stocks that don't require as much monitoring.
If you're OK with this risk and the ongoing homework it requires, however, the stock's current discount and its reliable dividend make Sirius XM a compelling option for income-seeking investors looking to beef up their total dividend income.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
3 Reasons to Buy Sirius XM Stock Like There's No Tomorrow was originally published by The Motley Fool