Is SiriusXM Satellite Radio a Buy For Investors?

SiriusXM Holdings launched nearly a generation ago with big plans to disrupt media.

Fast-forward to 2024 and those plans seem to have mostly fallen flat. Internet-native alternatives like Spotify dwarf SiriusXM in audience size and market cap, and SiriusXM has struggled to break away from the automotive market where it's most popular.

However, The Toronoto Globe and Mail reports SiriusXM just made an unusual move, and some investors seem to think it could be a catalyst for a breakout in the stock. On Sept. 9, Liberty Media completed its spin-off of Liberty SiriusXM Holdings, which is now known as SiriusXM Holdings.

The transaction reduced the number of shares outstanding by approximately 12%, after which the company enacted a 1-for-10 reverse stock split that lifted the share price out of the penny-stock range. The transaction seemed to breathe new life into SiriusXM, and could give it a fresh beginning. The company's management will have more flexibility as Liberty Media takes a back seat.

Reverse stock splits are generally a warning sign for investors. Companies typically use them when their stock prices have fallen so far that they've gone out of compliance with their exchange's listing rules. Merging shares together lifts their face value, which can bring such companies back into compliance and keep them away from being delisted.

That was not exactly the situation with SiriusXM, however. True, its stock has traded below $10 a share for several years, partly as a result of the company's issuing more stock to stay afloat during the 2008-2009 financial crisis. However, the company looks much more stable now than the typical reverse stock split stock.

Sirius is solidly profitable, but the company has struggled to grow its revenues and audience in recent years. The satellite radio veteran continues to target a leverage ratio of mid-to-low 3 times adjusted EBITDA, and plans to spend its free cash flow on investments, maintaining its dividend, and paying down its debts.

SiriusXM also said it's evaluating the goodwill and intangible assets it inherited from Liberty Media, which could lead to a write-down in the third quarter. That would be a non-cash accounting charge, though.

For dividend investors and value investors, SiriusXM looks like a good candidate. The stock trades at a price-to-earnings ratio of 7, and its yield of 4.6% at the current share price is also attractive.

However, it's reasonable to ask how sustainable the company's business is, which likely explains its low valuation.

Sirius is likely to lose Howard Stern next year when his contract expires, as he's expected to retire. The company also continues to lose market share to rival platforms like Spotify, and satellite radio seems less relevant as more vehicles are equipped with internet-ready interfaces like Carplay.