There are dozens of companies in Berkshire Hathaway's public equities portfolio. A lot of attention might go to Apple or Coca-Cola. However, investors need to pay attention to another business that's at the top of the list.

Warren Buffett-led conglomerate Berkshire Hathaway owns 21.6% of the outstanding shares of this well-known financial services company. This stock has climbed a phenomenal 217% just in the past five years (as of July 23).

But is it a no-brainer buying opportunity today?

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Holding a strong position in the credit card industry

The company that Berkshire has such a huge stake in is American Express (AXP 1.15%). The top Buffett stock's underlying business certainly possesses some very favorable characteristics.

For starters, Amex has a wide economic moat. This is something the Oracle of Omaha appreciates. It indicates a company's ability to defend itself against competitive forces, supporting its durability.

The American Express brand is a key asset for the business. Some of the company's credit cards are at the premium end of the market, holding a special status among consumers. Offering impressive rewards and perks while charging hefty annual fees attracts people with higher incomes.

American Express also benefits from a powerful network effect, which is true for other card and payment platforms. As the number of merchant acceptance locations grows, so does the utility for cardholders. And with more cardholders, merchants find more value because there are more opportunities to generate sales.

Another favorable trait is just how steady American Express' financial performance is. The economic backdrop recently hasn't been the smoothest, with concerns about tariffs making investors and executives jittery. But Amex continues to shine. During the second quarter, the financial giant reported a 9% year-over-year increase in revenue. This was driven by a 7% bump in spending.

For all the talk about macroeconomic weakness leading to a possible recession, Amex is giving investors every reason to remain optimistic. The percentage of card members loans that are 30 days or more past due is significantly below the industry average. Net write-off rates also declined sequentially and compared to the second quarter of 2024.

The company is extremely profitable, something Buffett likes. American Express generated $2.9 billion in net income in the second quarter. The leadership team uses the excess cash to buy back shares and pay a dividend. These are certainly investor-friendly capital allocation practices.

Why investors should tread with caution

Shares of Amex have been a huge market outperformer in recent years. As a result of this strong performance, the stock isn't cheap. The market is asking investors to pay a price-to-earnings (P/E) ratio of 21.5 to buy the stock. That's definitely not a bargain, as it's well above the trailing-three-year average multiple. But it's also not egregiously expensive.

Investors who want to own high-quality companies for a long time should undoubtedly have American Express at least on their watch list. The business should continue to post solid revenue and earnings growth for the foreseeable future, while the brand presence and network effect help it maintain its competitive standing. These are wonderful qualities to focus on.

But it's really anyone's guess what valuation multiple the stock will trade at five or 10 years down the road. This is a critical factor to think about. If the P/E ratio expands, it can add tremendous upside. On the other hand, paying too high of a multiple up front can create a headwind, as the P/E ratio could contract over time.

At the current price, American Express is far from being a no-brainer stock to buy.