• If you are wondering whether Berkshire Hathaway at around US$475 per share is a bargain or just fairly priced, this breakdown will help you separate headline noise from underlying value.
• The stock has moved 2.1% over the last 7 days and 0.2% over the last 30 days, while returns sit at a 4.3% decline year to date and a 10.9% decline over the past year, compared with gains of 47.1% over 3 years and 68.1% over 5 years.
• Recent coverage has focused on Berkshire Hathaway's role as a diversified financial giant, with attention on how its mix of operating businesses and large equity holdings shapes investor sentiment during changing market conditions. At the same time, market watchers have been reassessing long term capital allocation decisions, which often feeds into how comfortable investors feel with the current share price.
• Right now, Berkshire Hathaway scores 5 out of 6 on a structured valuation check. The sections that follow will compare different valuation approaches, then finish with a more complete way to think about what the stock might be worth.

Approach 1: Berkshire Hathaway Excess Returns Analysis

The Excess Returns model asks a simple question: how much value can Berkshire Hathaway create above the return that shareholders require on their equity? Instead of focusing on near term earnings, it looks at the long run return on equity versus the cost of equity.

For Berkshire Hathaway, the model uses a Book Value of $498,663.02 per share and a Stable EPS of $67,475.56 per share, based on the median return on equity from the past 5 years. The implied Cost of Equity is $41,229.26 per share, which leaves an Excess Return of $26,246.30 per share. That is built on an average Return on Equity of 12.21% and a Stable Book Value of $552,709.18 per share, using weighted future book value estimates from 2 analysts.

Putting these inputs together, the Excess Returns model indicates an intrinsic value of about $800.64 per share. Compared with the current share price around $475, the model suggests the stock is around 40.6% undervalued.

Result: UNDERVALUED

Our Excess Returns analysis suggests Berkshire Hathaway is undervalued by 40.6%. Track this in your watchlist or portfolio, or discover 53 more high quality undervalued stocks.

Approach 2: Berkshire Hathaway Price vs Earnings

For profitable companies like Berkshire Hathaway, the P/E ratio is a useful way to see how much you are paying for each dollar of earnings. It links what the business earns today with what the market is currently willing to pay for that earning power.

What counts as a "normal" or "fair" P/E depends on how quickly earnings are expected to grow and how risky those earnings appear. Higher growth or lower perceived risk can support a higher P/E, while slower growth or higher uncertainty usually calls for a lower P/E.

Berkshire Hathaway currently trades on a P/E of 15.31x. That sits below the Diversified Financial industry average P/E of 17.13x and also below the broader peer average of 23.29x. Simply Wall St’s Fair Ratio for Berkshire Hathaway is 16.77x. This reflects a tailored view of what P/E might make sense given factors such as earnings growth, profit margins, industry, market cap and specific risks.

This Fair Ratio approach can be more informative than a simple comparison with industry or peer averages because it adjusts for Berkshire Hathaway’s own characteristics rather than assuming all companies in the group deserve similar pricing. With the current P/E of 15.31x versus a Fair Ratio of 16.77x, the shares currently screen as undervalued on this metric.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Berkshire Hathaway Narrative

Earlier it was mentioned that there is an even better way to understand valuation. Narratives are worth introducing as a clear story you create around Berkshire Hathaway that connects your view of its business to explicit forecasts for revenue, earnings and margins, then into a Fair Value. This Fair Value can be compared with the current price on Simply Wall St’s Community page, where Narratives are available to millions of investors, refresh automatically when new news or earnings arrive, and can differ widely. For example, one Berkshire Hathaway Narrative might see very modest growth and a cautious Fair Value, while another expects stronger outcomes and assigns a higher Fair Value.

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.