Never a boring ride, Sirius XM Holdings Inc. (NASDAQ:SIRI) was one of my favorite speculative ideas. More than a year-and-a-half ago, I first wrote about Sirius XM stock. Back then, shares dipped into low $3 territory, drawing questions of whether satellite radio could compete against other media formats.
Certainly, it wasn’t easy picking Sirius stock as a recovery candidate.The technical signs pointed to a sharp breakdown in market sentiment. While its shares eventually climbed out of its hole from early February of 2016, it was still an uphill battle. For much of the first-half of last year, Sirius traded sideways. Furthermore, the SIRI stock news stream didn’t provide much confidence.
This is one of the trades where I completely understand the bearish position. The way modern media is consumed is substantially different from prior generations. Moreover, consumption patterns and platforms are constantly in flux. Being that the markets have the final word, the sharp collapse of Sirius XM stock confirmed pessimism surrounding the company.
But what the bears didn’t count on were the bullish developments behind the scenes. Two years ago, the SIRI stock news largely focused on the negatives. The details on their earnings report, though, indicated that the satellite-radio company was gaining paid subscribers.
In our current paradigm of free entertainment, such as Alphabet Inc‘s (NASDAQ:GOOG,NASDAQ:GOOGL) YouTube, the ability to accrue paid subs is a huge deal. False Facebook Inc (NASDAQ:FB) rumors that the social-media site would charge its users caused an uproar: imagine what would happen if it were true?
Investors of Sirius stock don’t have to worry about that scenario. Time and again, the company has proven that people are willing to pay money for quality content.
Still, can lightning strike twice for Sirius XM stock?
Sirius XM Stock Opens Wallets in a Stingy Environment
I said earlier that I understand why the pessimists shorted Sirius stock. Now, nearly two years forward from my initial write-up, I understand why some contrarians are hesitant to engage shares.
First, let’s be real: The company is no longer a sexy opportunity that few people see. Given that the SIRI stock news has generally changed its tune, going long is hardly contrarian. As InvestorPlace contributor Chris MacDonald pointed out earlier this summer, legendary guru Warren Buffett loves Sirius stock. Although a very positive endorsement, that’s about as mainstream as you can get.
Second, Sirius XM stock is on fire. Year-to-date, shares gained 28%. From the time of my write-up, the media firm jumped over 55%. Now, Sirius could very well move higher from here, but the easy money has probably been made.
On final note, the SIRI stock dividend isn’t much to write home about. At a yield of only 0.7%, the opportunity is purely based on capital growth if you buy shares outright. Should anything go wrong, the passive income won’t be much of a consolation prize.
Still, potential buyers need to ignore some of the noise about Sirius stock and focus on what matters. At a time when people expect creative content for free, SIRI convinces millions of people to open their wallets. More importantly, this trend is rising despite headwinds.
In its most recent second quarter of fiscal 2017 earnings report, SIRI had 32 million subscribers. In less than two years, it added two million additional subs. That flew against cautionary notes that smartphones dialed into connected cars would stymie sales. Even more surprising, higher rates and fees haven’t negatively impacted growth. As a result of the earnings report, Sirius XM soared, but there’s still room for increased profitability.
Exciting Potential Pipeline for Sirius Stock
Given that the SIRI stock dividend is minimal, the obvious criticism is that Sirius is levered too highly towards automobiles. If a company is merely a capital play, you want to have multiple paths for success. And that’s exactly what Sirius is aiming for.
As our own Richard Saintvilus reported, management has its sights set on Pandora Media Inc (NYSE:P). The media firm already has a $480 million strategic investment in Pandora; now, it just needs to buy it out completely.
The creative synergies for Sirius XM stock are obvious. Pandora has almost 77 million active listeners; however, Saintvilus points out that “the service makes no money.” In sharp contrast, Sirius is a proven “cash cow.” Under a combined entity, it can legitimately tackle YouTube and music services from Apple Inc. (NASDAQ:AAPL) and Spotify.
Ultimately, you can’t argue with performance. A once negative chart pattern for Sirius stock has completely turned around. It’s not without its ups and downs. However, solid fundamentals back SIRI’s rising momentum, and I don’t see enough evidence to justify betting against it.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
