Why Sirius XM Holdings Inc. Could Be a Gold Mine for Growth Investors
Sirius XM Holdings (NASDAQ: SIRI) shareholders have to be feeling pretty good these days. The media giant's stock is hitting 12-year highs this week, and satellite radio's popularity continues to grow with every passing quarter.
The stock is one of the market's biggest winners since it bottomed out at $0.05 -- yes, a nickel -- in early 2009 when it was on the brink of filing for bankruptcy reorganization. Sirius XM stock is a 126-bagger in that time, and while the next nine years may not provide the same kind of scintillating returns as the last nine years, there are plenty of catalysts in place to keep the premium radio provider ahead of the market.
Slowing down isn't a bad thing
Some of the knocks on Sirius XM as a growth stock at this point include its slowing growth, mammoth market cap, and shrinking volatility. Let's start at the top. Decelerating revenue growth isn't a deal-breaker for industry titans, and it's not a surprise that growth on a percentage basis has slowed.
Revenue growth has decelerated in seven of the nine years since the 2008 merger of Sirius and XM, yet the stock has managed to put up ridiculous gains in the process. Top-line upticks have actually stabilized in recent years, clocking in between 7% and 13% for the past seven years. The guidance it initiated for 2018 suggests revenue growth slowing to 5% this year, but this is a company that has historically put out low forecasts that it raises as the year plays out. In short, Sirius XM has been a big market winner despite growing in the single digits and pre-teens for years.
Then we get to the hearty price tag and its stabilizing volatility. Sirius XM commands a $28 billion market cap and a beefier enterprise value just north of $35 billion. The wave of speculators that were day-trading Sirius XM when it was a penny stock have moved on to other low-priced gambles, and that's a good thing. Sirius XM is now consistently profitable, carries a one-year beta below 1.00, and even pays a modest quarterly dividend. Sirius XM is also a voracious eater of its own shares, putting its healthy free cash flow to use through stock buybacks.
Offering some qualities that appeal to risk-averse investors doesn't make Sirius XM any less of a growth stock. We're seeing the fruits of its scalable model in action. Short interest of 216.1 million shares may be its lowest tally in more than a year, but that's still a number that is sizable enough to trigger a short squeeze when positive catalysts make an appearance.
Sirius XM is on a hot streak. The stock has moved higher every single year since its sharp slide in 2008. It will prove mortal at some point, but armed with 32.7 million subscribers and healthy retention and general economic trends, there's no point in betting against Sirius XM until it stops being a market darling.
10 stocks we like better than Sirius XM RadioWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Sirius XM Radio wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of February 5, 2018
Rick Munarriz 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.