Berkshire Hathaway (BRK.B): Is the Stock Undervalued After Recent Share Price Softness?

Berkshire Hathaway (BRK.B) stock has caught investors’ attention recently as several key metrics show both strengths and weaknesses. Let’s take a closer look at its latest performance and what is driving current sentiment.

See our latest analysis for Berkshire Hathaway.

Berkshire Hathaway's share price has slipped about 4.6% over the past month, tempering some of the gains from its 5.5% year-to-date advance. Its one-year total shareholder return stands at 7.6%. The longer-term story still looks robust, with momentum building steadily thanks to a three-year total return of nearly 64% and a five-year total return just over 114%. This demonstrates why the stock remains on the radar for many investors keen on dependable performance.

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But with Berkshire Hathaway currently trading at a notable discount to its estimated intrinsic value, investors are left to wonder: is this an undervalued blue chip opportunity, or has the market already factored in its prospects for future growth?

Price-to-Earnings of 16.3x: Is it justified?

At a price-to-earnings (P/E) ratio of 16.3x, Berkshire Hathaway’s shares sit just below their estimated fair P/E of 17.3x and above the industry average. With a last close of $475.68, the stock looks attractively valued compared to its peer group’s average, but not as cheap as some rivals in the diversified financial industry.

The P/E ratio compares a company’s current share price to its per-share earnings, providing a snapshot of market expectations for future profit growth. For a conglomerate like Berkshire Hathaway, this metric gauges the willingness of investors to pay for ongoing earning power and stability.

While the market currently assigns a higher multiple to Berkshire than its industry average of 14.8x, it still trades under the aggressive 26.8x peer benchmark. The estimated fair value of 17.3x suggests the market could eventually re-rate the stock upward if future earnings momentum justifies it.

Explore the SWS fair ratio for Berkshire Hathaway

Result: Price-to-Earnings of 16.3x (UNDERVALUED)

However, ongoing declines in net income and recent share price softness could undermine future returns if performance does not rebound soon.

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

Another View: Discounted Cash Flow Perspective

To challenge the price-to-earnings view, let’s turn to the SWS DCF model for a fundamental valuation. By this approach, Berkshire Hathaway’s shares appear to be trading significantly below their estimated fair value, with a discount of nearly 37%. This suggests the stock could offer more upside than the multiple alone implies.

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 841 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 want to dig deeper, and maybe arrive at a different viewpoint, you can explore the data and build your own take in just a few minutes with 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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