• Wondering if Berkshire Hathaway stock at around US$488 a share still offers value or if most of the upside is already priced in? This article walks through what the numbers are saying about valuation.
• The stock has moved 2.9% over the past week and 2.6% over the past month, while the year to date return is down 1.8% and the 1 year return is down 1.1%. This helps frame how the market has recently been reassessing both opportunity and risk.
• Recent coverage has focused on Berkshire Hathaway's role as a diversified financial giant and how its broad mix of operating businesses and investments can influence sentiment when markets reassess large, diversified companies. These headlines help explain why shorter term moves can look quite different to the longer 3 year and 5 year returns of 45.6% and 70.2%.
• Berkshire Hathaway currently scores a 5 out of 6 valuation check. Next you will see how different valuation methods line up on the stock before finishing with a broader framework that can help you think about value beyond a single metric.

Approach 1: Berkshire Hathaway Excess Returns Analysis

The Excess Returns model looks at how efficiently a company is expected to earn profits on its equity compared with the return investors require. The gap between those two, the excess return, is then capitalised to estimate what the stock could be worth today.

For Berkshire Hathaway, the model uses a Book Value of US$505,559.42 per share and a Stable EPS of US$63,684.58 per share, based on the median return on equity from the past 5 years. The required Cost of Equity is US$39,866.83 per share, which implies an Excess Return of US$23,817.75 per share. That is underpinned by an Average Return on Equity of 11.75% and a Stable Book Value estimate of US$542,107.44 per share from 2 analysts.

Putting these inputs together, the Excess Returns model arrives at an intrinsic value of about US$776.28 per share. Compared with the current share price around US$488, the model suggests the stock is 37.1% undervalued.

Result: UNDERVALUED

Our Excess Returns analysis suggests Berkshire Hathaway is undervalued by 37.1%. Track this in your watchlist or portfolio, or discover 49 more high quality undervalued stocks.

Approach 2: Berkshire Hathaway Price vs Earnings

For a profitable company like Berkshire Hathaway, the P/E ratio is a useful shortcut because it links what you pay for the stock to the earnings that support that price. In general, higher growth expectations and lower perceived risk can support a higher “normal” P/E, while slower growth or higher risk usually points to a lower multiple.

Berkshire Hathaway is currently trading on a P/E of 14.56x. That sits below both the Diversified Financial industry average of 16.56x and the peer group average of 23.32x. Simply comparing these figures can be helpful, but it does not fully reflect Berkshire Hathaway’s specific earnings profile, risk factors and size.

This is where Simply Wall St’s Fair Ratio comes in. The Fair Ratio of 18.05x is a proprietary estimate of what Berkshire Hathaway’s P/E “should” be, given inputs such as earnings growth, profit margins, industry, market cap and risk indicators. Because it is tailored to the company, it can be more informative than a broad peer or industry comparison. With the actual P/E at 14.56x versus a Fair Ratio of 18.05x, the stock screens as cheaper than this company specific fair value estimate.

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 a simple tool that lets you turn your view of Berkshire Hathaway into a story with numbers. They do this by linking your assumptions about its future revenue, earnings and margins to a financial forecast and a Fair Value. You can then compare that Fair Value to the current price on Simply Wall St’s Community page, where Narratives are updated as new news or earnings arrive. One investor might see Berkshire Hathaway as a conservative “safe treasury” type holding with a Fair Value close to the current price. Another might model a higher Fair Value based on a view that its large cash balance, acquisitions or buybacks could support stronger results. Each investor can use those different Narratives to help decide whether the current price looks high, low or roughly in line with their own view.

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.