Berkshire Hathaway has returned 77.4% over the past five years, yet current valuation checks still suggest the stock trades at a discount to an estimate of intrinsic value based on Excess Returns.

• A 77.4% gain over five years points to meaningful wealth creation for long term Berkshire Hathaway shareholders.
• Recent investments in housing related businesses and large scale capital deployment can support long term cash flows, while execution risk around these commitments may affect how much value ultimately reaches shareholders.
• The stock screens as undervalued in 5 of 6 core valuation checks, so the broader picture currently leans cheap rather than fully priced.

The issue now is whether Berkshire Hathaway's recent share price still leaves enough of a discount to the intrinsic value estimate to compensate you for the risks in that growth path.

Is Berkshire Hathaway Still Cheap on Excess Returns?

The Excess Returns model looks at how much profit Berkshire Hathaway can earn on its equity above the cost of that equity. For Berkshire Hathaway, the model uses a Book Value of $523,889.94 per share and a Stable EPS of $65,244.04 per share, based on the median return on equity over the past five years. With a Cost of Equity of $41,210.22 per share, this implies an Excess Return of $24,033.83 per share and an average return on equity of 11.91% on a Stable Book Value of $547,710.90 per share.

Those inputs translate into an estimated intrinsic value of $1,176,197.03 per share, which sits above the current share price, as implied by the 35.0% discount. Berkshire’s recent capital deployment in areas like housing and large stock positions fits a pattern in which the model assumes the company can continue earning returns above its equity cost. Because the Taylor Morrison housing deal concentrates more capital into one sector, it may help explain why some investors still price the stock below this intrinsic estimate.

Overall, the Excess Returns model indicates that Berkshire Hathaway stock appears undervalued relative to its current market price.

Our Excess Returns analysis suggests Berkshire Hathaway is undervalued by 35.0%. Track this in your watchlist or portfolio, or discover 49 more high quality undervalued stocks.

Is Berkshire Hathaway Still Cheap on Earnings?

The P/E ratio suits Berkshire Hathaway because earnings are a key anchor for such a diversified group of operating businesses and investments. Right now Berkshire Hathaway trades on a P/E of 12.7x, which sits below both the Diversified Financial industry average of 16.9x and the broader peer average of 23.2x.

The model’s Fair P/E Ratio for Berkshire Hathaway is 16.6x. This is the level suggested once factors such as size, margins, business mix and risk are taken into account. The current 12.7x multiple stands at a clear discount to that fair level, which indicates investors are paying a lower price for each dollar of earnings than the framework implies might be reasonable.

On this earnings multiple, Berkshire Hathaway stock appears undervalued compared with both its tailored fair P/E and sector benchmarks.

The Berkshire Hathaway Narrative: What Would Justify Today's Price?

Simply Wall St Narratives for Berkshire Hathaway pick up where the valuation checks leave off and explain what kind of future growth, margins and earnings path would need to hold for the stock to be worth materially more or less than today's price. Each one ties a specific fair value to a clear story about Berkshire Hathaway's potential catalysts and risks, so you can monitor over time which version of the story is playing out in the market.

Now is a good moment to add your voice to the Simply Wall St community with a number driven narrative on Berkshire Hathaway, including your view on whether the Taylor Morrison housing deal and recent capital deployment deliver the outcomes you think the current price reflects.

Set out the case in your own words and track how it holds up as Berkshire Hathaway's results, housing exposure and investment moves play out over time.

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

The Bottom Line

Berkshire Hathaway screens as undervalued on both the Excess Returns intrinsic value estimate and its current P/E multiple, and the broader valuation checks lean in the same direction. The gap between market price and intrinsic value reflects a debate over whether the company can keep earning returns above its cost of equity while deploying large amounts of capital. What matters most from here is whether Berkshire Hathaway converts its recent housing exposure and large investments into sustained, efficient earnings power instead of letting execution risk turn that discount into a value trap.

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.