Is Berkshire Hathaway Still a Smart Pick After This Month’s 8% Rally?

• Wondering if Berkshire Hathaway’s stock is truly a smart value buy or just a staple for famous investors? You’re not alone; fresh curiosity is swirling as market conditions shift and legendary names remain in focus.
• The share price has continued its steady climb, up 1.9% this week and now boasting an 8.0% gain in the last month, bringing the year-to-date return to a solid 13.9%.
• Recent headlines have highlighted Berkshire’s ongoing strategic investments and diversification efforts, including moves in fintech and energy that have drawn fresh attention from both retail and institutional investors. Speculation about new capital deployment and Warren Buffett’s market outlook have also fueled renewed optimism around the stock.
• On valuation, Berkshire Hathaway scores a 4 out of 6 on our valuation checks, signaling it may be undervalued in several key areas. Next, we’ll break down what these different approaches tell us, with an even better way to gauge true value revealed at the end.

Berkshire Hathaway delivered 6.4% 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 approach estimates Berkshire Hathaway's intrinsic value by analyzing how efficiently it generates profits relative to its cost of equity. This model focuses on return on equity and the company's ability to generate returns exceeding the minimum rate investors require for their capital.

Berkshire's average return on equity over the past five years stands at 12.85%, reflecting resilient financial performance. The company's current book value is $485,274.36 per share, with a stable earnings per share of $66,154.88, derived from recent historical results. Looking ahead, analysts estimate a stable book value of $514,986.06 per share, indicating a positive outlook for equity growth.

Importantly, Berkshire's cost of equity is $38,897.09 per share. Its excess return, which represents the value created above this cost, amounts to $27,257.79 per share. These figures reinforce Berkshire’s reputation for durable wealth generation and prudent capital allocation.

Based on this method, Berkshire is estimated to be 33.0% undervalued compared to its projected intrinsic value. This suggests the stock is trading at a notable discount relative to the true worth of its core operations.

Result: UNDERVALUED

Our Excess Returns analysis suggests Berkshire Hathaway is undervalued by 33.0%. Track this in your watchlist or portfolio, or discover 920 more undervalued stocks based on cash flows.

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

Approach 2: Berkshire Hathaway Price vs Earnings

For established, profitable companies like Berkshire Hathaway, the Price-to-Earnings (PE) ratio is a straightforward way to gauge value. The PE ratio helps investors see how much they are paying for each dollar of earnings, making it a popular tool for comparing companies with strong, reliable profits.

A company’s “normal” or “fair” PE ratio depends on factors like earnings growth outlook and business risk. Faster-growing or less risky companies usually justify higher PE ratios. Berkshire Hathaway currently trades at a PE of 16.4x, only slightly above the Diversified Financial industry’s average of 14.0x but much lower than the peer average of 25.0x.

Rather than just considering raw industry or peer numbers, Simply Wall St uses a calculated “Fair Ratio” to reflect what a reasonable multiple should be when accounting for Berkshire’s specific growth prospects, profitability, size, and risks. This proprietary fair PE stands at 17.0x, offering a more customized benchmark than a broad comparison with the industry or a handful of peers.

Because Berkshire’s actual PE ratio (16.4x) is almost identical to its Fair Ratio, shares appear very close to fairly valued using this popular metric.

Result: ABOUT RIGHT

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1443 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Berkshire Hathaway Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. A Narrative is your story or perspective on a company, connecting not just the numbers but also the reasoning behind assumed fair value and projections for future revenue, earnings, and margins.

Narratives go deeper than a single number and allow you to link Berkshire Hathaway’s unique story to a tailored financial forecast and an estimated fair value. This approach helps you interpret how news, earnings updates, or strategic changes could shift your expectations and the real opportunity.

On Simply Wall St’s Community page, Narratives are easy to create and use, making advanced investment tools accessible to everyone. By comparing your Narrative’s fair value against the live share price, you gain a clearer signal for evaluating your investment response.

Narratives also update dynamically as new information arrives, so your valuation stays current with the market. For example, some investors view Berkshire Hathaway’s fair value as high as $871,429 per share, while others see it closer to $599,421. This reflects different outlooks and risk assessments.

Do you think there's more to the story for Berkshire Hathaway? Head over to our Community to see what others are saying!

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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