Berkshire Hathaway's $370 billion portfolio has dozens of stocks. The top holdings include Apple and Coca-Cola, which investors know. But investors may have missed a far smaller investment. Should you invest $1,000 in this underrated Warren Buffett stock?
A bad track record Sirius XM (NASDAQ: SIRI) is the company. The satellite radio provider's app lets users listen to music, news, sports, and other audio entertainment. It makes money from subscriptions and ads. Pandora is owned by Sirius XM and offers paid and free streaming.
Even though the company offers popular audio services, shares have tanked. As of April 8, they have fallen 37% this year, while the S&P 500 and Nasdaq Composite have gained. Sirius XM stock has fallen 42% in five years. This isn't promising.
Reasons to avoid Sirius XM stock The average investor can easily buy the same stocks as top investors. Investors want Buffett's enterprises because of his long-term success. I recommend avoiding Sirius XM in this scenario.
First, avoid this company because it struggles to add subscribers. Sirius XM had more subscribers five years ago. Same story with Pandora. Growth has been scarce. A diminishing user base is a danger flag for a subscription-based company that makes 77% of its revenue.
Sirius XM is usually pre-installed for a set time in new cars. The goal is to convert free trial users to subscribers. Unfortunately, this technique has failed. The monthly customer turnover rate of 1.6% may be explained by this trend.
Competition in audio entertainment is strong. Sirius XM competes with Apple, Alphabet, and Spotify. These streaming services are hugely successful. I think this is why Sirius XM has trouble gaining subscribers. Satellite radio operators like Sirius XM have lost ground against cellphones and the internet. Newer cars let drivers connect their phones and listen to music or podcasts.
Investors should target financially stable companies for long-term prospects. Another Sirius XM weakness. Fair enough, the firm always makes money. Net income was $1.3 billion in 2023. For five years, its operating margin has averaged 23%, which is excellent. These findings are promising.
Looking at the financial sheet makes pessimism simple. Long-term debt for Sirius XM exceeded $9 billion on Dec. 31, 2023. These hefty interest payments accounted for 22% of operating profits in 2023. This increases financial risk, therefore investors should be cautious. If the economy tanks, the business may suffer. I think Sirius XM is a bad investment notwithstanding Buffett's Berkshire Hathaway shareholding.
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