Does the Recent $6B Chubb Stake Signal Opportunity in Berkshire Hathaway?

Thinking about what to do with your Berkshire Hathaway shares, or maybe debating whether now is a smart entry point? You’re not alone, and the stakes feel high whenever the market’s brightest “compounding machine” is involved. Over the past year, Berkshire Hathaway’s stock has climbed 7.8%, with a solid 9.3% gain year-to-date, and a staggering 135.4% return over five years. Even in the past three years alone, shareholders have enjoyed 76.1% growth. Sure, the last week and month have seen slight dips, at -1.7% and -0.3% respectively, but this hasn’t really shaken most long-term holders. With Warren Buffett at the helm and the company’s famously diversified business lines, many investors still view temporary pullbacks as a potential opportunity rather than a warning sign.

Recent market developments haven’t upended Berkshire’s fundamental story, but they do hint at shifting perceptions of risk and opportunity in today’s environment. Those who dive into valuation often find themselves puzzling over whether Berkshire is trading at a discount or already pricing in its legendary stability. That is where the numbers get interesting: On a classic value score made up of six checks, Berkshire is considered undervalued in four, landing it a pretty compelling score of 4 out of 6. That doesn’t automatically make it a screaming buy, but it certainly deserves a closer look.

So, how do these valuation methods really stack up, and is there a smarter way to decide if Berkshire’s current price reflects its true worth? Let’s explore the main valuation approaches first, before uncovering a surprising angle that could provide even deeper insight at the end.

Berkshire Hathaway delivered 7.8% 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 valuation model is designed to assess whether a company is generating returns on invested capital that exceed its cost of equity over time. This approach focuses less on near-term cash flows and more on the sustainable value being created for shareholders by reinvesting profits at attractive rates.

For Berkshire Hathaway, the numbers are telling. The company's book value per share stands at $464,307.83. Its stable earnings per share (EPS), calculated using the median return on equity from the past five years, is $64,432.73. Factoring in a cost of equity of $37,715.66 per share, Berkshire's excess return comes to $26,717.07 per share. Notably, the company boasts an average return on equity of 13.00%, indicating strong profitability relative to its shareholder equity base.

Looking ahead, Berkshire's stable book value is estimated at $495,490.17 per share, based on future projections from analysts. This supports the idea that the company can continue to create value above its cost of capital, which is critical for long-term compounding.

With these inputs, the Excess Returns model implies Berkshire Hathaway's intrinsic value is about 32.0% higher than its current market price. This suggests the stock is meaningfully undervalued at present levels.

Result: UNDERVALUED

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

Our Excess Returns analysis suggests Berkshire Hathaway is undervalued by 32.0%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: Berkshire Hathaway Price vs Earnings

The price-to-earnings (PE) ratio is a favored tool for valuing consistently profitable companies like Berkshire Hathaway. It provides a quick snapshot of how much investors are willing to pay for each dollar of current earnings, making it highly relevant for evaluating mature businesses with reliable profit streams.

What makes a “normal” PE ratio varies depending on factors such as growth expectations, perceived risk, and the company's competitive position. Higher growth or lower risk tends to command a greater multiple, while slower growth or increased uncertainty often weighs it down.

Berkshire Hathaway currently trades at a PE ratio of 16.9x. For context, the average PE for the Diversified Financial industry is 15.7x, while the typical peer has a much higher 26.2x. At first glance, Berkshire appears to be valued modestly relative to its direct competitors and just slightly above its industry.

However, Simply Wall St's proprietary “Fair Ratio” takes the analysis deeper. It calculates what Berkshire’s PE should be by factoring in not just industry norms but also unique elements such as the company’s growth prospects, risk profile, profit margins, and its significant market cap. This approach paints a more personalized picture than simple peer or industry comparisons. For Berkshire, the Fair Ratio comes out at 19.8x. This is just mildly above the current multiple of 16.9x, suggesting the stock is attractively priced for its financial profile and outlook.

Result: UNDERVALUED

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

Upgrade Your Decision Making: Choose your Berkshire Hathaway Narrative

Earlier we mentioned there is an even better way to understand valuation, so let’s introduce you to Narratives, an innovative tool designed to help investors connect the story behind a company, like Berkshire Hathaway, directly to the financial assumptions they make about its future.

Simply put, a Narrative is your personal perspective on a company’s outlook, where you lay out the story you believe in, back it up with your fair value estimate and projections, and see how it stacks up against the current price.

This approach is both accessible and dynamic. Millions of investors on Simply Wall St are already using Narratives within the Community page, where you can easily create, follow, or revise these story-driven forecasts as soon as new information surfaces, whether company news or fresh quarterly earnings.

Narratives make it straightforward to decide when to buy or sell, as they help you visualize the relationship between your fair value (grounded in your assumptions about future revenue, profits and margins) and what the market is offering today.

For Berkshire Hathaway, for example, some investors in the Community believe it is worth as much as $943,785 per share while others are more cautious, valuing it near $403 per share. This highlights how Narratives let each investor interpret the same numbers through their own story and conviction.

For Berkshire Hathaway, however, we'll make it really easy for you with previews of two leading Berkshire Hathaway Narratives:

• 🐂 Berkshire Hathaway Bull Case

  Fair Value: $943,785.74

  Undervalued by approximately 21.8%

  Revenue Growth Rate: 13.0%

  • Highlights Berkshire's robust financial strength, with low debt-to-equity and substantial cash reserves.
  • Emphasizes a disciplined value investing strategy and thoughtful succession planning as key factors for long-term outperformance.
  • Projects that, based on fundamentals and leadership continuity, a 12-15% annual share price growth is achievable in coming years.
• 🐻 Berkshire Hathaway Bear Case

  Fair Value: $604,196.40

  Overvalued by approximately 22.2%

  Revenue Growth Rate: 3.6%

  • Argues Berkshire is shifting toward defensive positioning, with increasing cash holdings and slower portfolio growth.
  • Acknowledges that its core businesses provide stable cash flows but limited growth; succession introduces new strategic uncertainties.
  • Values the stock well below current price, pointing to size constraints and potential headwinds in key sectors such as insurance and energy.

Do you think there's more to the story for Berkshire Hathaway? Create your own Narrative to let the Community know!

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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