2 Reasons to Buy Sirius XM Stock Like There's No Tomorrow

It's been a rough year for most stocks. Sirius XM Holdings (NASDAQ: SIRI) is no exception. Since 2025 began, shares have fallen by roughly 10%.

According to several metrics, Sirius XM stock looks like a screaming buy. Might it be time to buy shares like there's no tomorrow?

2 charts that show just how cheap Sirius XM stock is

As the largest satellite radio network, with more than 33 million subscribers, most investors are well aware of how Sirius XM generates revenue. Most of its revenue is generated by subscription revenue, although some is also generated via advertisements. Ads are an increasingly important factor in the company's success, since its subscriber and revenue growth have turned negative in recent quarters. Subscriptions peaked in 2019 at 34.91 million. Revenue, meanwhile, peaked in 2022 at just over $9 billion, before falling to around $8.7 billion today.

On the most recent quarterly conference call, Sirius XM CEO Jennifer Witz outlined the strategy behind ad-driven subscriptions:

The other opportunity, I think, that will be increasingly important to us is a low-cost subscription with ads. As we continue to find opportunities to take price on the overall subscriber base that we're looking to find methods to create lower price points for customers that may be more cost-conscious and are willing to hear ads, frankly, in their experience, you see this very successfully done.

Ad-supported plans have lower price points, possibly allowing the company to recapture some of its lost subscribers. It's still unknown whether this strategy will work, which is leading to a rock-bottom valuation for the company.

SIRI PE Ratio data by YCharts.

While the S&P 500 trades at a lofty 27 times earnings, Sirius XM stock trades at just 8 times earnings. On a forward basis -- that is, based on what Wall Street analysts believe the company will earn next year -- shares trade at just 6.8 times 2026 earnings. Meanwhile, a weak stock price has forced the dividend yield up to 5.2%.

Few companies are this cheap, especially in today's market. On paper, the stock gives you two compelling reasons to jump in: A cheap valuation based on both trailing and forward earnings, plus a hefty dividend yield that generates regular income while you wait for the valuation to turn around. But before you start accumulating shares, you should understand exactly what will need to happen for Sirius XM's valuation to rebound.

Should you start accumulating SIRI shares?

Make no mistake: Sirius XM stock is alarmingly cheap because it is a turnaround story. In order for the company to be a successful investment, it must reverse subscriber losses, negative revenue growth, and dwindling cash flows. Free cash flow was above $1.5 billion at the start of 2023. Today, it's down to around $1 billion. That still provides plenty of firepower to fund a turnaround effort, but time is limited. In the past, management has squandered billions of dollars by repurchasing stock at high prices, so it's no guarantee that these funds will be put to good use. Last quarter, the company posted a return on equity of negative 26%.

Just like high-multiple stocks priced for perfection, Sirius XM's rock-bottom valuation will likely be very sensitive to even small changes in its projected fortunes. Earnings and sales over the next 12 months are expected to be stable, with a small amount of growth possible. But the market knows that the company is on borrowed time, with mounting competition from streaming platforms like Spotify and Apple Music.

Sirius XM is an extremely attractive buy today, if you believe in one of two possibilities. First, perhaps the company will remain in stagnation, but become a significantly better allocator of capital than in years past, diverting excess cash flows to investors in a way that creates value. Second, perhaps the company's turnaround efforts will succeed, with small improvements to its prospects causing a sharp rerating for the stock's valuation.

Past efforts do not bode well for either of these two potential scenarios -- but that's a big reason why shares are so cheap. If you want to take a contrarian bet on a bargain-priced stock with income potential, Sirius XM should top your buy list.

Should you invest $1,000 in Sirius XM right now?

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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Spotify Technology. The Motley Fool has a disclosure policy.