One of the bigger stories of the past year has been Warren Buffett's continued sales of a number of key holdings. His firm, Berkshire Hathaway, has been a net seller of equities this year, leading to a record cash reserve of $325 billion. However, there is one company Buffett seems to like: Sirius XM (SIRI 3.06%). Berkshire just bought another $60 million worth of the stock, and it now controls over 33% of the company.

The audio entertainment company, which owns both the satellite radio platform Sirius XM and the music streaming service Pandora, is an interesting choice for Buffett. Its stock is down more than 50% year to date. Is now a good time to buy, or will this turn out to be one of Buffett's few misses?

Here's why Warren Buffett likes Sirius

Warren Buffett is a big proponent of investing in businesses with a "moat" -- that is, some sort of inherent competitive advantage that helps shield the company from competition. Sirius has a monopoly on satellite radio --  that's a pretty strong moat. Anyone trying to seriously compete would have to spend an enormous amount of money building out the infrastructure to provide the service and then win market share.

Sirius comes pre-installed on many new cars, and as of the third quarter, it has 33 million subscribers.

It also has fairly stable cash flows and high margins. The latest earnings report showed a net loss of nearly $3 billion for the quarter, but that is due to a "non-cash impairment charge" from a recent deal. In other words, this is a matter of accounting and not reflective of the company's normal position. For the three years prior to Q3 2024, the company averaged roughly $300 million in quarterly net income.

Management projects $1 billion in free cash flow (FCF) for 2024. This includes one-time costs associated with the aforementioned deal as well as a year of significant capital expenditures (capex), especially in the company's satellite infrastructure. As these costs normalize, Sirius can work towards it long-term FCF target of $1.8 billion.

Finally, one of the most compelling numbers is Sirius's churn rate -- or lack thereof. With churn of just 1.6% last quarter, such strong customer satisfaction bodes well for the stability of its business in the future.

There are some reasons to be cautious

There are several bearish factors to consider too, including a high debt load and a near-total reliance on its relationships with car manufacturers. However, the biggest cause for concern is Sirius's growth problem. While last quarter saw an uptick in a key area of subscribers, the overall trends from the last few years are not great for the company. And while its current churn rate is impressive, I'm not sure it will stay so low in the future. Radio, in general, has been disrupted by streaming; it's really older listeners who continue to rely on radio.

In an attempt to get ahead of this trend, Sirius acquired Pandora in 2019. But they backed the wrong horse. Pandora sorely lags behind other streaming services. Industry leader Spotify has more than 620 million monthly active users (MUAs) worldwide. Pandora has 46 million MAUs and is shrinking; this doesn't bode well for the long-term future of the company.

Sirius is heavily discounted

To me, these trends make Sirius a stock I wouldn't want to hold for 20 years. However, it will be some time before these issues are really felt by the business. In the meantime, the stock is trading at a very low valuation, and given its potential FCF growth over the next few years, Sirius could be a fine play in the next five years. And those appear to be good enough reasons for Berkshire to continue buying shares.