Is Berkshire Hathaway (BRK.A) Still Priced Attractive After Recent Steady Long Term Gains

• If you are wondering whether Berkshire Hathaway's share price still reflects its underlying value, you are not alone. This article is here to walk through that question step by step.
• The stock most recently closed at US$745,000, with returns of a 1.3% decline over 7 days, roughly flat over 30 days, 0.1% year to date, 9.9% over 1 year, 53.9% over 3 years and 110.9% over 5 years, which gives a useful backdrop for thinking about value today.
• Recent headlines have continued to focus on Berkshire Hathaway's large and diversified portfolio, including ongoing attention on its major equity holdings and sizeable cash position. Together with regular commentary on Warren Buffett's capital allocation choices, this keeps investor interest high and provides context for the share price moves you are seeing.
• On our checks, Berkshire Hathaway currently holds a valuation score of 4 out of 6. This suggests some areas where the stock looks undervalued and some where it looks closer to fair value. Next we will walk through the main valuation approaches before finishing with a way to tie them together into a clearer picture for long term investors.

Berkshire Hathaway delivered 9.9% returns over the last year. See how this stacks up to the rest of the Diversified Financial industry.

Approach 1: Berkshire Hathaway Excess Returns Analysis

The Excess Returns model looks at how much profit a company generates over and above the return that shareholders would reasonably expect, then capitalizes those excess profits to estimate what the business might be worth today.

For Berkshire Hathaway, the starting point is its book value of $485,274.36 per share and a stable book value estimate of $531,325.31 per share, based on weighted future book value estimates from 2 analysts. Using a median return on equity from the past 5 years, the model derives a stable EPS of $68,253.81 per share.

The required return for shareholders, or cost of equity, is set at $40,299.09 per share. That leaves an excess return of $27,954.72 per share, supported by an average return on equity of 12.85%. These excess earnings are projected into the future and discounted back to today to arrive at the Excess Returns intrinsic value.

On this basis, the model points to an intrinsic value that sits about 36.7% above the current share price, which suggests the shares are trading at a meaningful discount.

Result: UNDERVALUED

Our Excess Returns analysis suggests Berkshire Hathaway is undervalued by 36.7%. Track this in your watchlist or portfolio, or discover 883 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Berkshire Hathaway.

Approach 2: Berkshire Hathaway Price vs Earnings

For a consistently profitable company, the P/E ratio is a useful way to see how much you are paying for each dollar of earnings. It connects the share price directly to the business’s current earning power, which is usually a key driver of long term returns.

What counts as a “normal” P/E depends on what investors expect for future growth and how much risk they see in those earnings. Higher expected growth or lower perceived risk can support a higher multiple, while slower expected growth or higher risk usually leads to a lower one.

Berkshire Hathaway currently trades on a P/E of 15.89x, compared with the Diversified Financial industry average of about 14.20x and a peer average of 27.10x. Simply Wall St’s Fair Ratio for Berkshire, which estimates a suitable P/E based on factors such as earnings growth, profit margins, industry, market cap and risk, is 18.65x. This Fair Ratio can be more informative than a simple industry or peer comparison because it is tailored to the company’s specific profile rather than broad group averages.

Set against this Fair Ratio, Berkshire’s current P/E of 15.89x suggests the shares are trading below that company specific reference point.

Result: UNDERVALUED

P/E ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1446 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Berkshire Hathaway Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, a simple way to connect your view of Berkshire Hathaway with the numbers behind it.

A Narrative is your story about the company, translated into a financial forecast, where you set assumptions for future revenue, earnings and margins, and the platform turns that into a fair value estimate.

On Simply Wall St’s Community page, used by millions of investors, Narratives make this process straightforward by linking the company’s story to a forecast and then to an implied fair value, which you can compare directly with today’s share price to help you decide whether the stock looks attractive or expensive for your goals.

These Narratives update automatically when new information such as news or earnings is added, so your fair value view keeps moving with the company. For example, you might see one Berkshire Narrative that assumes very conservative growth and a lower fair value sitting below the current price, while another assumes stronger compounding and a higher fair value that sits well above the market price.

Do you think there's more to the story for Berkshire Hathaway? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com