Berkshire Hathaway (BRK.B) Could Be 34% Below Fair Value Following Recent Gains
Recent share moves and what they tell you
Berkshire Hathaway (BRK.B) has seen its stock edge higher over recent periods, with a 0.4% move over the past day, 3.4% over the past week and 2.4% over the past month.
Over the past 3 months the stock return is 8.1%, while the 1 year total return stands at 8.2%. Longer term figures show total returns of 46.2% over 3 years and 79.1% over 5 years.
See our latest analysis for Berkshire Hathaway.
Berkshire Hathaway’s recent share price momentum, including an 8.2% 1 year total shareholder return and an 8.1% 3 month share price return, points to steady interest rather than rapid re-rating, as investors reassess long term growth and risk.
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With Berkshire Hathaway shares up recently and the price now close to analyst targets yet still showing a large intrinsic value gap, the next step is clear. Where does fair value really sit within that spread?
Price-to-Earnings of 15.2x: Is it justified?
Berkshire Hathaway currently trades on a P/E of 15.2x, which sits below the estimated fair P/E of 17.8x and below the analyst-derived intrinsic value that implies a 34.1% discount at a share price of $511.54.
The P/E ratio compares what investors are paying today for each dollar of earnings. For a diversified group like Berkshire Hathaway, which spans insurance, rail, energy and a wide range of manufacturing and retail operations, this metric pulls together the earnings power of all those segments into one simple yardstick.
On that basis, the current 15.2x P/E suggests the market is pricing Berkshire Hathaway’s earnings at a lower level than both the estimated fair P/E of 17.8x and the company specific future cash flow value, which is estimated at $776.79 per share. The fair ratio provides a reference level that valuations could reasonably converge toward if earnings and business mix remain broadly consistent with what is implied in the model.
Against the US Diversified Financial industry average P/E of 14.7x, Berkshire Hathaway trades on a higher multiple. That points to a premium against the sector, even though it still sits below the estimated fair P/E and well below the SWS DCF model estimate of future cash flow value of $776.79.
Explore the SWS fair ratio for Berkshire Hathaway
Result: Price-to-Earnings of 15.2x (UNDERVALUED)
However, Berkshire Hathaway still faces risks from its wide exposure to insurance and energy, where adverse claims experience or regulatory shifts could quickly change the valuation story.
Find out about the key risks to this Berkshire Hathaway narrative.
Another view on Berkshire Hathaway’s value
While the P/E discussion suggests Berkshire Hathaway is attractively priced, the SWS DCF model goes further. It values the stock at $776.79 per share compared with the current $511.54 price. That points to a wide gap that could either signal opportunity or embed risks investors are underestimating.
Look into how the SWS DCF model arrives at its fair value.
Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Berkshire Hathaway for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 55 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.
Next Steps
Given the mix of potential upside and clear risks around Berkshire Hathaway, it makes sense to check the underlying data yourself and make a decision while the information is fresh. To see both sides of the story in one place, review the 1 key reward and 1 important warning sign
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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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