Could Sirius XM Holdings Inc. Be a Millionaire-Maker Stock?

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If you had a time machine, you could've made a killing buying into Sirius XM Holdings (NASDAQ: SIRI) in early 2009.  The stock bottomed out at $0.05 when it was on the brink of filing for bankruptcy, months after feet-dragging regulators had finally approved the combination of Sirius Satellite Radio with XM. An investment of just $10,000 in the stock at the time would be worth more than $1 million today, but can new shareholders strike gold, too?

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Sirius XM won't be another 100-bagger at this point. The media giant would command a $2.5 trillion market cap, a couple of times larger than the most valuable companies on the planet. However, there's no reason to believe that it can't continue to beat the market in the coming years. 

Sonic boom

The first step in assessing Sirius XM's bullish potential is defusing the bearish arguments. A common knock over the years is that satellite radio is a transitory technology, but we've seen the platform survive if not outright thrive alongside the rise of the connected car and mobile streaming apps. Sirius XM continues to grow its subscriber base with just one sequential blip over the past eight years. Revenue has risen every single year, as Sirius XM gets its growing audience to pay more for the platform. Perhaps the even more impressive nugget is that retention rates have held relatively steady over the years, so subscribers aren't fleeing at a quicker pace than before. 

Another popular bone of contention is that Sirius XM is at the mercy of new car sales, a scary proposition given the cyclical nature of the auto industry and the problematic trend of millennials opting to Uber or Lyft their way around when mass transit isn't available in lieu of vehicle ownership. Sirius XM has been able to sidestep most of that lumpiness by tackling the used-car market, growing the percentage of new cars with factory-installed receivers.

Shooting for the moonroof 

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Sirius XM closed out its latest quarter with a record 32.2 million subscribers. Growth may be slowing -- revenue and operating profit rose 8% and 11%, respectively -- but there's little reason to think that we've hit peak satrad.

The media giant is consistently profitable, and it expects to top $1.5 billion in free cash flow this year. Ad revenue may be a minor component of the Sirius XM model, but it is growing a lot faster than subscriber growth as marketers are willing to pay more to reach the platform's affluent users. 

Valuation concerns may seem legitimate with Sirius XM fetching 26 times next year's earnings, but let's not forget its aggressive share buybacks and its potential to expand its product offerings. Sirius XM is putting its money to good use through acquisitions and shelling out a modest quarterly dividend, but it's also been a voracious eater of its home cooking. Its diluted share count is falling sharply for the fifth consecutive year. It goes without saying that the lower the share count, the higher earnings will be on a per-share basis. 

Sirius XM is also making shrewd investments in everything from telematics to streaming services. It acquired a 19% piece of Pandora (NYSE: P) back in June after flirting with an outright buyout of the streaming radio pioneer. It might still circle around and buy all of Pandora -- an analyst at BMO Capital argued as much two weeks ago -- but even if it doesn't, it should be able to take advantage of Pandora's audience that is twice the size of Sirius XM's base as a minority stakeholder.

As long as top- and bottom-line growth continues and the share count declines, we should be seeing some pretty impressive earnings-per-share growth at Sirius XM in the coming years. Whether Pandora gets absorbed into Sirius XM's bloodstream or not, the association should help both companies expand their respective potentials outside of their initial domains. Sirius XM has done well in the past few years, and it should continue to do so in the future. 

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Rick Munarriz owns shares of Pandora Media. The Motley Fool owns shares of and recommends Pandora Media. The Motley Fool has a disclosure policy.