Berkshire Hathaway (BRK.B): Is the Current Valuation Attractive After a 4% Three-Month Gain?

Berkshire Hathaway (BRK.B) continues to be on investors’ radars, as its stock maintains steady performance in a market shaped by shifting economic signals. In the past 3 months, the stock has climbed 4%.

See our latest analysis for Berkshire Hathaway.

Berkshire Hathaway is building on a steady string of gains, with its share price recently landing at $492.42. The company's momentum remains positive, with a 9% year-to-date share price return and a robust 5.9% total shareholder return over the past year underline investor confidence. Its outstanding 74% total return over three years keeps it a standout performer in the broader market.

If Berkshire’s long-term track record has you reassessing your next move, consider expanding your perspective to uncover fast growing stocks with high insider ownership

But after years of impressive gains, is Berkshire Hathaway’s current share price still attractive for new investors, or are markets already pricing in all of its future growth potential, leaving little room for further upside?

Price-to-Earnings of 16.9x: Is it justified?

Berkshire Hathaway is currently trading at a price-to-earnings (P/E) ratio of 16.9x, placing it in a potentially undervalued position relative to what might be expected for its earnings power and compared to the average of peers.

The price-to-earnings ratio measures the price investors are willing to pay today for a dollar of earnings. In Berkshire's case, a 16.9x multiple reflects market expectations for steady, if unspectacular, future earnings growth given its size and diversification.

This multiple is notably lower than the peer average of 25.4x. This suggests that the market is not currently assigning a premium for Berkshire’s earnings compared to other diversified financials. However, our fair price-to-earnings estimate is 19.8x. This indicates there is still some room for investors to see upward re-rating if the company executes well.

Explore the SWS fair ratio for Berkshire Hathaway

Result: Price-to-Earnings of 16.9x (UNDERVALUED)

However, potential headwinds such as slowing net income growth and limited revenue acceleration could put pressure on the stock if these trends persist.

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

Another View: What Does the DCF Model Say?

While earnings multiples suggest Berkshire Hathaway is modestly valued, our DCF model paints a different picture. According to this method, the stock trades around 32% below our estimate of its fair value. This suggests notable potential upside and a possible disconnect with current market sentiment. Does this indicate an overlooked opportunity or a misreading of future risks?

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 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 see things differently or like to dig into the numbers on your own, take just a few minutes to shape your own view and Do it your way.

A great starting point for your Berkshire Hathaway research is our analysis highlighting 1 key reward and 1 important warning sign 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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