Berkshire Hathaway (BRK.B) Stock Looks Undervalued As Its 82% Five Year Run Continues
Berkshire Hathaway stock has delivered an 81.8% return over 5 years, yet the latest valuation work suggests the current share price of US$512.37 still sits at a meaningful discount to an intrinsic value estimate based on the Excess Returns model.
- Berkshire Hathaway's 81.8% return over the past 5 years points to a stock that has already rewarded patient shareholders. This makes any remaining upside case more reliant on the underlying valuation than on momentum.
- The completed acquisition of Taylor Morrison can support long term cash flow through a larger homebuilding platform. At the same time, exposure to housing cycles and integration execution may weigh on how much value investors ultimately assign to this deal.
- With a high value score of 5 out of 6, Berkshire Hathaway screens as broadly cheap across the main valuation checks rather than fully priced.
The issue now is whether Berkshire Hathaway's current discount to the intrinsic value estimate offers enough margin of safety once the recent share price gains and new homebuilding exposure are taken into account.
Is Berkshire Hathaway a Bargain on Excess Returns?
The Excess Returns model looks at whether Berkshire Hathaway is earning more on its equity base than the estimated cost of that equity. For Berkshire Hathaway, the model uses a book value of $505,559.42 per share and a stable EPS estimate of $63,627.66 per share, based on the median return on equity from the past 5 years. Against a cost of equity of $39,918.67 per share, this implies an excess return of $23,709.00 per share and an average return on equity of 11.75% on a stable book value of $541,622.96 per share.
Those inputs translate to an intrinsic value estimate of $774.30 per share, compared with the recent share price of $512.37. That gap implies Berkshire Hathaway screens as around 33.8% undervalued on this Excess Returns view. Because the completed acquisition of Taylor Morrison enlarges the homebuilding platform, investors may see the current discount as reflecting both the strength of the core excess returns profile and the added execution and housing cycle risks around that deal.
On this Excess Returns analysis, Berkshire Hathaway stock currently looks undervalued relative to the estimated intrinsic value.
Our Excess Returns analysis suggests Berkshire Hathaway is undervalued by 33.8%. Track this in your watchlist or portfolio, or discover 49 more high quality undervalued stocks.
Is Berkshire Hathaway Still Cheap on Earnings?
The P/E ratio is a useful way to see what you are paying for each dollar of Berkshire Hathaway earnings. At the current price, Berkshire Hathaway trades on a P/E of 15.2x, which is close to the diversified financial industry average of about 15.4x and sits well below a wider peer group average of 24.0x.
The tailored fair P/E for Berkshire Hathaway is 17.7x, based on its profile compared with similar companies. That is higher than the current 15.2x. This points to investors paying a lower multiple than this framework suggests might be reasonable for the stock.
On this P/E yardstick, Berkshire Hathaway stock appears undervalued relative to both its fair multiple and broader peers.
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 for Berkshire Hathaway pick up where the valuation work leaves off and explain which combinations of growth, margins and earnings would need to hold for the stock to be worth materially more or less than today’s price. Each Berkshire Hathaway narrative ties a fair value estimate to a specific set of potential catalysts and risks, so you can track over time which storyline appears to be taking shape on the Community page.
Share a narrative on Berkshire Hathaway in the Simply Wall St community to set out a number-driven view on whether the Taylor Morrison acquisition and the combined homebuilding platform justify today's valuation.
This is a chance to add your voice, lay out the key figures you think matter most, and see how your thesis holds up as new results and updates on Berkshire Hathaway's homebuilding operations come through.
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
Berkshire Hathaway still screens as undervalued on both the Excess Returns intrinsic value estimate and the current earnings multiple, which point in the same direction rather than conflicting. That leaves the key question whether the discount is compensation for real risks, particularly around the larger homebuilding exposure after the Taylor Morrison acquisition, or whether it reflects an overly cautious view of the group’s earning power. For investors, the key consideration from here is whether Berkshire Hathaway can sustain returns that support the intrinsic value estimate and prompt the market multiple to close some of that gap.
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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