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Berkshire Hathaway (BRK.A) Stock Looks Undervalued As Its 86% Run Continues

Simply Wall St · 2d ago

Berkshire Hathaway has delivered a powerful long run for long term holders, and the question now is whether that track record is still matched by the returns the conglomerate earns on its capital at today’s price. With the stock near recent highs after a long stretch of gains, investors are asking how much of Berkshire’s capital efficiency is already built into the current valuation.

  • Over the past 5 years the share price has returned 85.5%, which puts the spotlight on whether Berkshire’s capital allocation and reinvestment returns can continue to justify that kind of compounding from this level.
  • Recent moves such as taking full control of multifamily lender MF1 and the implied value of the Precision Castparts unit, alongside a large Alphabet stake, may support expectations that Berkshire can keep finding projects where retained earnings and investment capital earn attractive incremental returns.
  • What if you looked at Berkshire Hathaway through its earnings instead? See what Berkshire Hathaway's 12.8x P/E says about the price.

The issue now is whether the returns Berkshire Hathaway earns on its capital today are strong enough to justify the current share price implied by that long run.

If you want more context for Berkshire Hathaway’s capital returns story, compare it with other companies in our screener of 35 high quality undervalued stocks.

Does Berkshire Hathaway Look Undervalued on Excess Returns?

The Excess Returns model looks at how effectively Berkshire Hathaway turns its equity base into earnings above its own cost of capital. For Berkshire Hathaway, the inputs point to a mature but still productive capital engine rather than a high growth story.

Book Value per share is modeled at $522,225.90, with a Stable Book Value of $547,710.90 per share based on estimates from 2 analysts, and an Average Return on Equity of 11.91%. That translates into Stable EPS of $65,244.04 per share, against a Cost of Equity of $41,019.23 per share, leaving an Excess Return of $24,224.81 per share that the model treats as value created beyond the required return. Because the recent MF1 acquisition concentrates more lending risk on Berkshire’s balance sheet, the sizeable Excess Return helps explain why the Excess Returns valuation still comes out substantially above the current share price of $771,770.02. Find out what Berkshire Hathaway could be worth using our Excess Returns estimate.

The Berkshire Hathaway Narrative: What Would Justify Today's Price?

Simply Wall St Narratives pick up where that valuation puzzle leaves off and explain what would need to happen to Berkshire Hathaway's growth, margins and earnings for the stock to be worth meaningfully more or less than today’s price, based on scenarios you can find on the Community page. Each narrative links a fair value to a clear story about Berkshire Hathaway's potential catalysts and key risks so you can track over time which version appears to be unfolding.

One of the top community narratives on Berkshire Hathaway: 18% undervalued

"Berkshire Hathaway''s combination of financial strength, disciplined investment approach, and strong leadership makes it a compelling investment option..."

Discover why this Narrative puts Berkshire Hathaway at 18% undervalued.

Berkshire Hathaway's valuation still leaves one crucial factor unexplored

Numbers only tell part of the Berkshire Hathaway story, because the people deciding where each dollar goes and how they are rewarded for those choices can tilt the whole outcome. See who runs Berkshire Hathaway and how they are paid.

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.