Kraft Heinz's (KHC 0.77%) stock has gained traction while most other stocks have fallen in the bear market. Its role as a food stock and ability to draw sales amid inflation has boosted this long-suffering stock.

Moreover, Kraft Heinz has undoubtedly boosted Warren Buffett's Berkshire Hathaway portfolio as it is a stock in which he has long held a large position. However, it is also a stock Buffett has referred to as a mistake, and that means investors should take a closer look at the business and financials before following Buffett's lead.

Warren Buffett and Kraft Heinz

Kraft Heinz has become a reminder that even Warren Buffett makes investing mistakes. In 2013, Buffett partnered with 3G Capital to buy Heinz for $23 billion. In 2015, he engineered a merger with Kraft Foods to form Kraft Heinz, introducing its stock at $71 per share.

Nonetheless, seven years later, Kraft Heinz sells at a 45% discount from that initial price. A change in consumer tastes away from packaged foods, a $15.4 billion write-down of intangibles in 2019, and a dividend cut have significantly influenced the stock.

But despite admitting that he had paid too much for Kraft when he bought it, Buffett continues to hold more than 325.6 million shares of Kraft Heinz, his sixth-largest position. Also, even after a sell-off in May, it is beating the market in 2022, rising by about 10% since the beginning of 2022, even as the S&P 500 has tumbled.

How Kraft Heinz has transformed itself

Indeed, better internal decision-making and industry tailwinds have helped Kraft Heinz stock recently. After the write-down, Miguel Patricio took over as CEO. Under Patricio, Kraft Heinz sold its nut and specialty cheese businesses while acquiring more companies that make sauces and condiments.

Despite such changes, revenue fell 0.5% year over year in 2021. Also, in the first quarter of 2022, revenue dropped by 5.5% to just over $6 billion. Still, the company reduced its cost of products sold and operating expenses, an impressive feat in an inflationary environment. This took net income to $781 million, an increase of 38%.

The state of Kraft Heinz stock

The rising income has likely helped the stock. Since Patricio took over the company, the stock has registered a total return of around 50%, pulling ahead of the S&P 500 during that time. Without dividends, that return was only about 26%. Still, since the 2019 dividend cut, the company has paid shareholders $1.60 per share annually, a cash return of about 4.1%. This is more than double the average S&P 500 dividend of around 1.7%.

KHC Total Return Level Chart

KHC Total Return Level data by YCharts

Nonetheless, its valuation could point to challenges. Its P/E ratio now stands at 40, much higher than peers like General Mills and ConAgra, which trade at 16 times and 17 times earnings, respectively.

Investors should also not write off the possibility of another write-down. Kraft Heinz's balance sheet reveals that $44 billion of the company's $94 billion in total assets are intangibles, assets with no physical substance. That is about seven times the $6.6 billion worth of property, plant, and equipment owned by the company. If accounting rules force another revaluation of those assets, another write-down like the one that devastated Kraft Heinz stock in 2019 is possible.

Should investors follow Buffett into Kraft Heinz stock?

Given the company's condition, investors should probably not add positions in this stock. Admittedly, Buffett's continuing position in the stock might offer hope, as does the 4.1% dividend for investors seeking yield.

Still, Kraft Heinz is significantly more expensive than its peers, and that factor may persuade investors to rotate out of the stock at some point. More concerning is the $44 billion in remaining intangibles. While investors hope they turn into physical assets, they more likely point to a write-down waiting to happen.

Mistakes are a part of the investing game, even for Buffett. While this does not mean one should now ignore Buffett's advice, it means that one can probably sidestep one of his mistakes by passing on Kraft Heinz.

Editor's note: This article has been corrected. Before joining Kraft Heinz as CEO, Miguel Patricio was the Chief Marketing Officer (CMO) at Anheuser-Busch InBev.