In Berkshire Hathaway's (NYSE:BRK.A) (NYSE:BRK.B) latest Securities and Exchange Commission filings, the company revealed that it has initiated a position of 17.5 million shares in Synchrony Financial (NYSE:SYF) worth over a half-billion dollars. Here's a quick rundown of what Synchrony Financial does and what may have attracted Warren Buffett and his team to the stock.

What does Synchrony Financial do?

Synchrony Financial is the largest issuer of private-label store-branded credit cards in the United States. Formerly a part of General Electric's consumer finance division, the company was spun off in November 2015.

The company issues credit cards for an extensive list of retailers, and among the most notable names in Synchrony's retail card portfolio are Amazon, Wal-Mart, Lowe's, T.J. Maxx, Gap, and Dicks Sporting Goods, just to name a few. Synchrony also provides promotional financing for major purchases for retailers such as Ashley Homestore and Guitar Center, and also operates healthcare financing platform CareCredit. The company has over 69 million active customer accounts and financed $125 billion in purchases in 2016.

Warren Buffett speaking with reporters.

Image source: The Motley Fool.

Why might Synchrony have been added to Berkshire's portfolio?

While Buffett has not spoken publicly about Berkshire's Synchrony investment, there are several reasons why Synchrony was added to the portfolio.

For one thing, Buffett likes the credit card business. American Express is one of Berkshire's largest stock investments, and there are also smaller stakes in Visa and Mastercard. Synchrony is actually quite close to American Express in terms of its business model, so it shouldn't be too surprising that it would end up in Berkshire's portfolio. Like Amex, Synchrony is a card issuer and therefore benefits from interest income.

Although Synchrony's credit card portfolio isn't quite as high-end as that of American Express, the average Synchrony customer has a relatively high 714 FICO score (the U.S. average is 700), and nearly three-fourths of customers have scores above 660, considered to be "prime" credit.

Synchrony's 5.42% charge-off rate may sound a bit on the high side, and it is, but consider that its store-branded cards come with interest rates that are significantly above average in many cases. Because of this, Synchrony's net interest margin is an impressive 16.2%. For comparison, American Express' net interest yield on card member loans is 10.3%.

The credit card business in general has grown impressively in recent years, and Synchrony is no exception. The company's most recent earnings report showed 10.5% year-over-year loan growth, which handily outpaces the 4.5% credit card industry's overall balance growth.

Synchrony also recently increased its quarterly dividend payment by 15% and authorized up to $1.64 billion in share buybacks in the one-year period through June 2018. This means that the company could buy back roughly 7% of its outstanding shares in just one year -- the type of shareholder-friendly capital return activity that Buffett loves to see.

Lastly, Synchrony looks rather cheap right now. The stock is down roughly 15% in 2017, while the S&P has risen by 10%. And at just 11.4 times trailing-12-month earnings, the stock looks attractively valued, especially considering its growth and profitability.

The Foolish bottom line

To be clear, we don't know for sure why Synchrony Financial was added to Berkshire Hathaway's portfolio, and we won't unless Buffett or another member of Berkshire's stock-picking team decides to share their reasoning. In addition, we don't know if Buffett initiated the position or if one of his two trusted stock pickers made the investment.

Finally, while it can certainly be interesting to keep track of what stocks billionaires are buying or selling, it's not a good idea to buy or sell stocks in your own portfolio just because a billionaire did the same. You can use Buffett's moves as a starting point for your own research (in fact, Berkshire's recent investment in Store Capital got that particular real estate investment trust on my radar), but it's always a smart idea to do your own research before buying.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.