What’s driving Warren Buffett’s massive investment in Sirius XM’s $8 billion market cap?

Warren Buffett is a supporter of Sirius XM and people are curious why. Let’s break it down in his own words.

First, this isn’t about the recent 1-for-10 reverse stock split. “(Stock splits) don’t change anything about the core business,” Buffett often reminded. So what’s behind this move?

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Buffett deeply understands the Sirius XM business. He is familiar with subscription-based models. “As a former newsboy,” Buffett once said, he knows how subscription revenue works out. Plus, he’s a fan of the service. Word on the street is that he particularly likes the Siriusly Sinatra channel. And it’s not just about the music; Buffett values companies with a strong market position. Sirius XM? It has a monopoly on satellite radio in the US and has a solid place in the podcast industry.

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Then there is the management factor. Buffett is famous for saying, “Our favorite time to hold a company is forever,” but only if the company has “outstanding management.” Jennifer Witz, CEO of Sirius XM, has been with the company since 2002, rising through the ranks to her current position. He has experience and, importantly, he has his finger on the pulse – he owns almost 12.1 million shares. That kind of commitment from leadership is something Buffett respects.

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Ultimately, it all comes down to price. Buffett learned from Benjamin Graham, the “father of value investing.” He is still a value investor at heart. “I will only buy a stock if its price is attractive relative to the lower end of my estimated earnings range,” Buffett once explained. Sirius XM is trading at a forward price-to-earnings ratio of 6.4, one of the cheapest in Berkshire Hathaway’s portfolio. With a price-to-earnings-to-growth (PEG) ratio of 0.64, it’s clear why Buffett finds this attractive.

So why is Buffett buying Sirius XM hand on heart? Simple. He understands the business, trusts management and thinks the price is right.

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This article What’s Fueling Warren Buffett’s Huge Investment in Sirius XM’s $8 Billion Market Cap originally appeared on Benzinga.com