Where Will Sirius XM Stock Be in 3 Years?

The last three years have been brutal for Sirius XM Holdings (NASDAQ: SIRI) investors. Shares of the satellite radio monopoly have surrendered more than two-thirds of their value over the past three years. Can the next three years be better?

With the stock's cheap valuation, chunky 5.2% dividend yield, and Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) as its largest shareholder, it's hard to bet against Sirius XM's chances for a turnaround. Let's take a quick look back before sizing up Sirius XM's chances of turning things around in the next few years.

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Looking for a way out

Sizing up the stock's 68% drop over the past three years is rough. It's not much of a silver lining to say that the total return is a decline of 64% when you factor in the quarterly distributions along the way. Sirius XM has been a disappointment in many ways.

Subscribers have inched lower since peaking in 2019. It's been a gradual decline, and its monthly churn rate is within the platform's historical range. The problem has been a lack of new additions to offset those canceling. You have to back more than a decade to find the last time that Sirius XM has posted double-digit revenue growth, and the top line is declining slightly for the third year in a row.

Financially speaking, Sirius XM continues to generate generous free cash flow. It's returning a good chunk of that money to its shareholders through stock buybacks and dividends.

Looking back, it should've probably spent more of its free cash flow paying down its debt than trying to prop up a sinking stock price, but that's enough looking back. Let's check the bearish and bullish scenarios for Sirius XM over the next three years.

Looking down in 2028

If Sirius XM continues moving lower in the next three years, it will likely be the handiwork of accelerating deterioration of its subscriber count. If Howard Stern and his crew don't return next year -- the fourth of his five-year deals ends at the start of 2026 -- Sirius XM will save some money, but likely also shed some subscribers. Sirius XM has been making new bets on popular podcasters to fill the potential void, and ideally woo younger drivers to the platform. If the content moves flop, Sirius XM will find it even harder to compete against cheaper streaming options available to anyone with a smartphone in this era of connected cars.

A gradual fade-out isn't terrible, especially when you're a money machine cranking out 10-figure free cash flow every year like Sirius XM. The problem would be if restlessness finds it making ambitious acquisitions or ramping up marketing campaigns that don't bear fruit.

A subscriber base doesn't shrink on its own. It eventually weighs on the bottom line. Sirius XM can raise prices along the way, but that will likely only speed up the net defections. There are things worse than slowly bleeding out, but standing still isn't a turnaround strategy.

Looking up in 2028

The business can get better. Mandates for in-office employment can get more cars on the road. Sirius XM has always been at its best when commuters tune in to popular morning show content on the drive to work.

Gas prices can stay low. The economy can prove resilient. New content can give Sirius XM a differentiated edge. There are plenty of ways to get folks wanting to pay up for premium entertainment in the car.

Analysts see a return to gradual growth in each of the next three years, but it's at a snail's pace. Projected revenue of $8.6 billion in 2028 is just 0.8% higher than it is right now. Earnings per share, on the other hand, is expected to rise 11% three years from now. Those numbers will be adjusted as reality kicks in, one way or the other.

A wild card here is Warren Buffett. Berkshire Hathaway investors now own more than 37% of Sirius XM's outstanding shares.

The moment that Buffett starts selling, it's going to make a bad situation worse, but what if the company keeps buying? What if Berkshire Hathaway decides to buy all of Sirius XM -- or, more likely -- cut a deal to sell its stake to a private equity firm, which will then swallow the entity whole?

It won't likely happen at much of a markup, but it should be at a premium. Investors will keep collecting those hefty dividend checks every quarter until that happens.

As a shareholder myself, I naturally see the shares taking the rosier course over the next three years. I would be pleasantly surprised if revenue does tick higher next year, but the bottom-line growth can continue in the near term, as Sirius XM has fewer satellite deployments to bankroll in the next couple of years.

In the meantime, you can buy Sirius XM for less than 7 times next year's earnings. As long as the subscriber base doesn't get run off a cliff, I like Sirius XM as a high-yielding turnaround situation.

Rick Munarriz has positions in Sirius XM. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.