Stock Analysis

Berkshire Hathaway (NYSE:BRK.B) is Lagging the Broad Market yet Buffett Keeps the Buybacks up.

  •  Updated
NYSE:BRK.B
Source: Shutterstock

Berkshire Hathaway Inc. ( NYSE:BRK.B) looks to be gunning for new highs, as the company reported a Q2 earnings rise of 21%.

Q2 2021 earnings results

  • Operating earnings US$6.69b, US$1.18b Y/Y
  • Quarterly buybacks US$6b, YTD US$12.6b
  • Q2 net earnings of US$28.1b or US$12.33 per class B share

Warren Buffett keeps repurchasing shares. Following the record buybacks in 2020 (US$25b), he holds a similar pace in 2021 so far. The analysts who have been following his actions through the decades know that he prefers to purchase businesses at 10x pretax earnings plus the cash position or better. However, he is a disciplined buyer who waits for the best timing, even for his own company. Buybacks slowed down in May after Berkshire put in a new all-time high; therefore, it is worth keeping an eye on the buyback volume as price revisits those levels.

NYSE:BRK.A Share Price 2020/2021 , August 8th, 2021

Unfortunately for shareholders, while the Berkshire Hathaway share price is up 93% in the last five years, that's less than the market return.There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance.One way to examine how market sentiment has changed over time is to look at the interaction between its share price and its earnings per share (EPS).

earnings-per-share-growth

NYSE:BRK.B Earnings Per Share Growth August 9th, 2021

Over half a decade, Berkshire Hathaway managed to grow its earnings per share at 35% a year.The EPS growth is more impressive than the yearly share price gain of 14% over the same period.Therefore, it seems the market has become relatively pessimistic about the company.This cautious sentiment is reflected in its (reasonably low) P/E ratio of 6.50.

A Different Perspective

Berkshire Hathaway provided a TSR of 36% over the year. That's relatively close to the broader market return.That gain looks pretty satisfying, and it is even better than the five-year TSR of 14% per year. Management foresight may  bring growth well into the future, even if the share price slows down.I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For example, we've discovered  1 warning sign for Berkshire Hathaway that you should be aware of before investing here.

Berkshire Hathaway is not the only stock insiders are buying. So take a peek at this  free list of growing companies with insider buying.

Please note, the market returns quoted in this article reflect the market-weighted average returns of stocks that currently trade on US exchanges.

*First version of this article was based on the wrong data. The article has since been updated.

Valuation is complex, but we're helping make it simple.

Find out whether Berkshire Hathaway is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

Simply Wall St analyst Stjepan Kalinic and Simply Wall St have no position in any of the companies mentioned. This article 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.

Stjepan Kalinic

Stjepan Kalinic

Stjepan is a writer and an analyst covering equity markets. As a former multi-asset analyst, he prefers to look beyond the surface and uncover ideas that might not be on retail investors' radar. You can find his research all over the internet, including Simply Wall St News, Yahoo Finance, Benzinga, Vincent, and Barron's.

About NYSE:BRK.B

Berkshire Hathaway

Berkshire Hathaway Inc., through its subsidiaries, engages in the insurance, freight rail transportation, and utility businesses worldwide.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation2
Future Growth4
Past Performance0
Financial Health4
Dividends0

Read more about these checks in the individual report sections or in our analysis model.

Adequate balance sheet with reasonable growth potential.