Sirius XM: Buy, Sell, or Hold?

There's a lot of variety when you go channel surfing through the offerings on Sirius XM Holdings ' (NASDAQ: SIRI) satellite radio platform. The same can be said about opinions on the stock itself. Sirius XM has gone from a speculative and volatile penny stock 15 years ago to a steady and profitable media powerhouse.

It doesn't mean that investors have been rewarded through the transformation. Despite the platform's success -- serving 33 million subscribers right now -- the stock has shed half of its value over the past five years. It's one of this year's biggest losers, but will it stay that way? Let's take a look at the reasons to buy, sell, or hold Sirius XM.

Buy Sirius XM

It's hard to live in the shadow of the battleground stock it was ages ago, but the situation today is considerably kinder than it was when regulators dragging their feet on approving the combination of Sirius and XM nearly bankrupted the upstart. Sirius XM is a company consistently generating annual 10-figure free cash flow for the last few years.

The best bullish argument for Sirius XM right now is its value. In a world where traditional media companies are struggling to stay afloat, spending money they don't have on digital initiatives, or leveraged to the point of unprofitability in a sluggish ad market, Sirius XM is cheap. It's trading for less than 10 times trailing earnings. The earnings multiple is a still reasonable 16 if you go by Sirius XM's bloated enterprise value.

There are growth challenges, but Sirius XM is going to extraordinary measures to return money to its shareholders. It's been aggressively buying back shares, reducing its share count by nearly 40% since its peak a dozen years ago. It's also returning money to its shareholders through a dividend that has risen every year since initiating a payout policy in 2016. Its depressed share price this year finds Sirius XM yielding a double-take-worthy 3.4%.

Finally there's the Warren Buffett angle. Berkshire Hathaway had a 36.7 million share stake in Sirius XM earlier this year. It nearly quadrupled that stake to 132.9 million shares in the second quarter. Buffett believes in a stock that is down 42% this year? I think I may have buried the lede.

Image source: Getty Images.

Sell Sirius XM

A stock wouldn't be as cheap as Sirius XM if it didn't have problems, and there are some legit reasons to steer clear of the satellite radio monopoly. Let's start with growth, or what is now a lack of growth. Organic revenue increases have been in the single digits since 2015, and last year those single-digit top-line moves turned negative.

Satellite radio has a problem. Younger drivers are gravitating to streaming apps in their connected cars, slowing the pace of new subscribers. Churn is in check as longtime subscribers are sticking around, but the historically low cancellation rate is no match for the thinning pipeline of new trail subscriptions. Sirius XM has 618,000 fewer subs than it had at the start of this year.

There's another reason to worry about Sirius XM beyond the slow fade out of its business. Media mogul John Malone owns a controlling stake in Sirius XM. It currently trades as Liberty Sirius XM Group tracking shares. Last week Malone's shareholders approved a plan to combine his discounted tracking shares with the more widely traded Sirius XM common stock. The transaction is expected to go into effect after the close of trading on Sept. 9.

What's so bad about the transaction? Well, some investors who own Liberty Sirius XM Group as a discounted way to play Sirius XM may cash out starting Sept. 10. The selling could be short-lived, but it's one more potential concern for bulls of the out-of-favor media stock .

Hold Sirius XM

There are some negatives to the positives. The buybacks are improving profitability on a per-share basis, but Sirius XM paid a lot more for many of those shares over the years than what they are fetching now. The end of Malone's tracking shares in two weeks can lead to a wave of selling, but it could just as well be a dinner bell for the bulls now that the distraction of Liberty Sirius XM Group is no longer weighing down the satellite radio platform's market attention.

The stock is cheap, but it's hard to find a catalyst that can reverse the decelerating revenue growth. Buffett is here, but he also owns a sizable chunk of the tracking shares. What if he joins the potential wave of sellers next month? There are question marks for a company that was once all about exclamation points.

I'm siding with the bulls here. The stock is cheap enough for a potential buyout. If it doesn't get scooped up, an activist investor could have better plans for this cash cow than just buybacks, dividends, and debt repayments. A turnaround could take time, but with healthy yield at least investors are being paid to wait.

Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy .