22% of Warren Buffett-Led Berkshire Hathaway's $265 Billion Portfolio Is Invested in Only 1 Stock

Warren Buffett has been at the helm of Berkshire Hathaway for decades. During his tenure, the conglomerate's share price has soared at a compound annual rate of about 20%. This easily crushes the S&P 500 index.

The best investment decision made by the "Oracle of Omaha," at least based on the dollar figure of gains it has achieved, may have happened in the past decade. Shares of this dominant business are up 649% since the start of 2016, the year Buffett first started buying. Despite sizable stock sales, this company still represents 22% of Berkshire's $265 billion public equity portfolio as of April 17.

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Should you buy this stock right now? Understanding Buffett's thinking, as well as the current situation, could help you decide.

Checking all the boxes

During the first quarter of 2016, Warren Buffett may have made the most lucrative investing decision of his career. That was when he first decided to buy shares in Apple (NASDAQ: AAPL). This came as a surprise to the investment community at the time because the Oracle of Omaha typically shied away from making bets on tech-driven enterprises. However, the factors that contributed to his decision are clear.

Looking through Berkshire's many holdings, you'll realize that Buffett appreciates companies with strong brands. Even a decade ago, Apple fit this category. It built a reputation for innovation, designing beautiful hardware devices powered by proprietary software that's incredibly easy to use. Apple was and is an aspirational brand.

Consequently, the business has always positioned its products at the premium end of the market. Add this to Apple's branding, and it's no surprise the company has pricing power. This is one of Buffett's favorite traits. And it's supported by a powerful ecosystem strategy that combines Apple's products and services to keep customers locked in and loyal.

Buffett generally won't invest in financially unsound companies. Apple is the furthest from this. In fiscal 2015, the year before Buffett bought shares for the first time, Apple reported a net profit margin of 23%. Fast forward to today, and that profitability is still evident. What's more, Apple generates more cash than it knows what to do with, even accounting for sizable share buybacks.

Finally, the valuation certainly played a critical role. During the first quarter of 2016, Apple's shares traded at an average price-to-earnings (P/E) ratio of 10.6. With the benefit of hindsight, this looked like an absolute bargain. Berkshire has reaped the rewards of Buffett's decision to buy Apple stock.

Is now a good time to buy Apple?

Just because an investment worked out well in the past and still has the endorsement of a legendary investor doesn't mean the stock is an automatic buy right now. It's best to view things with a fresh perspective.

Apple shares have been getting hit recently due to fears about the economic landscape. They are down 24% from their peak. However, the valuation still looks expensive.

Investors can buy the stock at a P/E ratio of 31.3 as of today. This is three times what Buffett first paid. In other words, the market is fully aware of how great a business Apple is, providing investors with no margin of safety.

Paying that kind of valuation would make sense if Apple were registering strong profit growth. This hasn't been the case, though. In fiscal 2024, earnings per share (EPS) declined. And over the next three fiscal years, consensus analyst estimates indicate the key metric will rise at a 9% annualized clip. That doesn't justify the current P/E multiple. It's smart to keep Apple on the watch list for now.

Should you invest $1,000 in Apple right now?

Before you buy stock in Apple, consider this:

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Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Berkshire Hathaway. The Motley Fool has a disclosure policy.