Berkshire Hathaway (BRK.B): Assessing Valuation After Recent Share Gains and Portfolio Momentum

Berkshire Hathaway (BRK.B) shares have gained about 4% over the past week, while overall returns for the past month are closer to 2%. Investors continue to keep an eye on the company’s broad portfolio strategy.

See our latest analysis for Berkshire Hathaway.

After a year marked by steady gains and a few headline-grabbing moves in its portfolio, Berkshire Hathaway’s 1-year total shareholder return sits at 6.3%. That may look modest next to its 3-year total return of nearly 61% and an impressive 5-year figure topping 113%. However, the stock’s recent upward momentum has started to build again, hinting investors are regaining confidence in Berkshire’s diversified approach after a period of muted excitement.

If Berkshire’s renewed momentum has you thinking about what’s next, this is an opportune time to broaden your perspective and discover fast growing stocks with high insider ownership

With Berkshire Hathaway’s recent uptick and long-term returns in focus, the key question remains: is there still value to be found in the stock, or have markets already accounted for its future growth potential?

Price-to-Earnings of 15.9x: Is it justified?

Berkshire Hathaway currently trades at a price-to-earnings (P/E) ratio of 15.9x, which is above the US Diversified Financials industry average of 13.3x. This means investors are paying a higher price for each dollar of earnings compared to most of Berkshire’s sector peers.

The P/E ratio measures what investors are willing to pay today for every dollar of a company’s earnings. For a broad financial conglomerate such as Berkshire, it reflects the market’s expectations for future profitability and the sustainability of its earnings power.

Despite its seasoned management and high-quality earnings, this premium P/E suggests the market expects Berkshire to outperform typical industry growth or maintain its dominant competitive position. When compared to its estimated fair price-to-earnings ratio of 17x, there is still some potential upside if sentiment or results improve further. The current P/E also sits well below the peer group average of 27.1x. This highlights that Berkshire is valued more cheaply than other large diversified financials, despite its impressive long-term track record.

Explore the SWS fair ratio for Berkshire Hathaway

Result: Price-to-Earnings of 15.9x (ABOUT RIGHT)

However, investors should note that slowing annual net income growth, as well as any surprise downturns in Berkshire’s core businesses, could challenge the current optimism.

Find out about the key risks to this Berkshire Hathaway narrative.

Another View: What Does the DCF Model Say?

While Berkshire Hathaway appears fairly valued based on its earnings multiple, our DCF model presents a different perspective. It estimates the fair value at $763.39 compared to the current price of $496.98. This suggests the shares could be significantly undervalued if the model’s longer-term assumptions prove accurate.

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 863 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Berkshire Hathaway Narrative

If you’d like to dive deeper or reach your own conclusions, you’re welcome to explore the numbers and craft your own narrative in just a few minutes, Do it your way

A great starting point for your Berkshire Hathaway research is our analysis highlighting 1 key reward and 2 important warning signs that could impact your investment decision.

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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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