Berkshire Hathaway (BRK.A) Stock Still Looks Below Fair Value Today

Berkshire Hathaway stock has delivered an 81.7% total return over the past 5 years, yet current valuation checks suggest the shares may still trade at a discount to their intrinsic value. With both the Excess Returns model and market multiples pointing in the same direction, investors are weighing how much of Berkshire Hathaway’s long term compounding story is already reflected in the current price.

• The 81.7% 5 year return highlights Berkshire Hathaway’s ability to create value over time, which sets a high bar for what counts as an attractive entry point today.
• Recent moves such as the multibillion dollar Alphabet position and renewed exposure to US housing related businesses can support earnings power over time, while concentration in a handful of major equity stakes may expose Berkshire Hathaway’s valuation to sentiment around those holdings.
• A high value score of 5, together with an intrinsic value estimate that sits about 36% above the current share price, both indicate that the broader checks lean cheap rather than fully priced.

For investors, the debate is whether Berkshire Hathaway’s current share price already reflects the quality of its portfolio and capital allocation, or whether the apparent discount to intrinsic value offers remaining upside over the coming years.

Spot opportunities that echo Berkshire Hathaway’s mix of quality and apparent value by scanning our hand picked list of 47 high quality undervalued stocks that share similar fundamentals.

Does Berkshire Hathaway Look Undervalued on Excess Returns?

The Excess Returns model looks at how efficiently Berkshire Hathaway turns its large equity base into earnings above its cost of capital, then capitalizes those extra returns into an intrinsic value per share. For Berkshire Hathaway, the inputs are unusually large in absolute terms, with a Book Value of $522,225.90 per share and a Stable EPS of $65,244.04 per share based on the median return on equity from the past 5 years.

Against a Cost of Equity of $41,041.32 per share, this implies an Excess Return of $24,202.72 per share on an Average Return on Equity of 11.91%. The model also assumes a Stable Book Value of $547,710.90 per share, informed by weighted future book value estimates from 2 analysts, and converts this into an intrinsic value estimate of about $1,185,759 per share. With the Excess Returns valuation suggesting the stock is 36.0% below this intrinsic value estimate, Berkshire Hathaway appears inexpensive relative to what its long run earnings power suggests, even after the recent $36.6b Alphabet stake drew fresh attention to the portfolio.

On these Excess Returns assumptions, Berkshire Hathaway stock appears undervalued relative to its estimated intrinsic value.

Our Excess Returns analysis suggests Berkshire Hathaway is undervalued by 36.0%. Track this in your watchlist or portfolio, or discover 47 more high quality undervalued stocks.

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

Does Berkshire Hathaway Look Undervalued on Earnings?

The P/E multiple is a useful way to look at Berkshire Hathaway because earnings capture both its operating businesses and its large investment portfolio. Right now the stock trades on a P/E of about 12.6x, which is well below the Diversified Financial industry average of 17.4x and also under the wider peer group average of 23.8x.

On Simply Wall St’s fair P/E estimate of 16.1x, which reflects Berkshire Hathaway’s size, profitability and risk profile, the current P/E implies a discount rather than a premium. The gap between the market P/E and this fair ratio suggests that earnings quality and diversification are not fully reflected in the current share price.

On the P/E multiple, Berkshire Hathaway stock currently looks undervalued compared with both its sector and an internally modelled fair ratio.

See what the numbers say about this price — find out in our valuation breakdown.

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

Simply Wall St Narratives pick up where the valuation work on Berkshire Hathaway leaves off and explain what would need to happen to growth, margins and earnings for the stock to be worth materially more or less than today’s price. Rather than a single multiple or model output, each one lays out the assumptions that sit behind its fair value so you can compare those expectations with Berkshire Hathaway's reported results over time on the Community page.

Be one of the first voices in the Simply Wall St community to set out a number driven Narrative on Berkshire Hathaway and your view on whether moves like the Alphabet investment and housing exposure deliver on their potential. Share your thesis, track how it lines up with future results, and see how other investors respond over time.

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

The Bottom Line

For Berkshire Hathaway, both the Excess Returns intrinsic value estimate and the current P/E multiple point to the stock trading on an undervalued footing rather than a fully priced one. The key question is whether the market eventually credits Berkshire Hathaway with the earnings power implied by its excess returns on equity and the breadth of its portfolio, or keeps the current discount in place. From here, what matters most is whether investors gain confidence that the major equity stakes and capital allocation decisions can sustain that earnings profile without introducing risks that justify a lower multiple.

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.

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