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Sirius XM generates considerable recurring revenue and management expects its free cash flow to increase.
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It faces stiff competition from audio streaming services.
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Sirius XM stock is trading at a cheap valuation, but its discount could be justified.
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10 stocks we like better than Sirius XM ›
The US stock market is on track to close out 2025 with another double-digit percentage return. But not all companies contributed positively to that result. For example, starting Friday morning, Sirius XM (NASDAQ:SIRI) Shares are down about 9% so far this year. This continues a disappointing streak: The stock has plunged 67% over the past five years.
However, after this latest drop, is it possible that Sirius XM has become a once-in-a-lifetime buying opportunity? The answer depends on the business, its fundamentalsand his valuation.
When it comes to the national satellite radio market, there is only one contender. Sirius XM is the only operator in the US, and regulatory hurdles would make it difficult for any potential rival to get off the ground. Additionally, significant capital investments would be needed to build the necessary infrastructure and expand it.
As such, Sirius XM is theoretically a company with competitive advantages. Additionally, the company generates significant subscription revenue: $1.6 billion in the third quarter alone. Subscriptions make up 75% of your total sales base and that recurring revenue stream makes your overall finances more predictable.
Another good sign is that the business is profitable: It reported net income of $297 million last quarter. Management also expects the company to produce just over $1.2 billion in free cash flow (FCF) this year, and is targeting FCF of $1.5 billion in 2027. With the company on track to require lower capital expenditures, FCF is positioned to trend upward, if what its executives are saying is to be believed.
However, the company is not without some negative qualities that investors would do well not to overlook. One clear factor working against Sirius XM is technological innovation, namely the ubiquity of smartphones and faster Internet connectivity. Advances on those fronts laid the groundwork for streaming services like Spotify and Apple Music to prosper. And these could offer consumers a better value proposition.
Sirius XM may not have direct competitors in the satellite radio industry. However, it obviously faces intense competition from these streamers, particularly those operated by tech sector megacaps. They all have the resources to make things difficult for Sirius XM, which saw a shrinking base of self-pay subscribers and declining revenue in the third quarter.