Over the past six months, Sirius XM’s stock price fell to $23.99. Shareholders have lost 18.1% of their capital, which is disappointing considering the S&P 500 has climbed by 6.2%. This may have investors wondering how to approach the situation.

Is there a buying opportunity in Sirius XM, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Even though the stock has become cheaper, we're cautious about Sirius XM. Here are three reasons why you should be careful with SIRI and a stock we'd rather own.

Why Do We Think Sirius XM Will Underperform?

Known for its commercial-free music channels, Sirius XM (NASDAQ:SIRI) is a broadcasting company that provides satellite radio and online radio services across North America.

1. Decline in Core Subscribers Points to Weak Demand

Revenue growth can be broken down into changes in price and volume (for companies like Sirius XM, our preferred volume metric is core subscribers). While both are important, the latter is the most critical to analyze because prices have a ceiling.

Sirius XM’s core subscribers came in at 33.23 million in the latest quarter, and over the last two years, averaged 1.2% year-on-year declines. This performance was underwhelming and implies there may be increasing competition or market saturation. It also suggests Sirius XM might have to lower prices or invest in product improvements to grow, factors that can hinder near-term profitability.

2. EPS Trending Down

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

Sadly for Sirius XM, its EPS declined by 38.9% annually over the last five years while its revenue grew by 2.2%. This tells us the company became less profitable on a per-share basis as it expanded.

3. New Investments Fail to Bear Fruit as ROIC Declines

A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Sirius XM’s ROIC has unfortunately decreased significantly. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Final Judgment

We see the value of companies helping consumers, but in the case of Sirius XM, we’re out. Following the recent decline, the stock trades at 7.8× forward price-to-earnings (or $23.99 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are more exciting stocks to buy at the moment. We’d recommend looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.

Stocks We Would Buy Instead of Sirius XM

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