• If you have ever wondered whether Berkshire Hathaway is currently priced fairly or offering value, this is a good moment to look closely at what you are paying for each dollar of business performance.
• The stock last closed at US$723,821, with the share price up 0.9% over the past week, up 1.8% over the past month, but down 2.7% year to date and down 6.1% over the last year. The three and five year returns stand at 42.7% and 67.4% respectively.
• Recent headlines have focused on Berkshire Hathaway's portfolio moves and capital allocation decisions, which often influence how investors think about its future cash generation and risk profile. These news items help frame the recent share price performance by shaping expectations about how the company might deploy its sizeable balance sheet and investment portfolio.
• On Simply Wall St's valuation checks, Berkshire Hathaway currently scores a 5 out of 6. The sections ahead will walk through what different valuation methods say about the stock and point to an even more complete way of thinking about value at the end of the article.

Approach 1: Berkshire Hathaway Excess Returns Analysis

The Excess Returns model looks at how effectively Berkshire Hathaway turns shareholder equity into earnings, then compares that return to the cost of equity. The gap between the two, known as excess return, is treated as the economic value the company creates over and above what investors require.

For Berkshire Hathaway, book value is US$505,559.42 per share and the stable book value estimate is US$542,107.44 per share, based on weighted future book value estimates from two analysts. The model uses a stable EPS of US$63,684.58 per share, derived from the median return on equity over the past five years. This implies an average return on equity of 11.75%. The cost of equity is US$40,232.93 per share, which leaves an excess return of US$23,451.65 per share.

When those excess returns are projected forward and discounted, the Excess Returns valuation produces an intrinsic value of about US$1,146,285.73 per share. Compared with the recent share price of US$723,821, this implies the stock is about 36.9% undervalued on this model.

Result: UNDERVALUED

Our Excess Returns analysis suggests Berkshire Hathaway is undervalued by 36.9%. Track this in your watchlist or portfolio, or discover 50 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 straightforward way to see how much you are paying for each dollar of earnings. Investors usually accept a higher or lower P/E depending on what they expect for future earnings growth and how much risk they see in the business.

Berkshire Hathaway currently trades on a P/E of 14.37x. That sits below the Diversified Financial industry average of 16.90x and below the peer group average of 22.57x, which might initially look like a discount. However, simple comparisons like these do not factor in company specific drivers such as growth, profitability, size and risk.

Simply Wall St’s Fair Ratio aims to adjust for those factors to estimate what a more tailored P/E might be. For Berkshire Hathaway, the Fair Ratio is 17.05x, based on inputs such as earnings growth characteristics, industry, profit margins, market cap and risk profile. Because this Fair Ratio is higher than the current 14.37x, the P/E based view suggests the stock is trading below the level implied by those fundamentals.

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, so Narratives are a simple way for you to write the story behind your numbers by linking your view on Berkshire Hathaway’s future revenue, earnings and margins to a financial forecast and a fair value that can be compared directly with the current share price.

On Simply Wall St’s Community page, Narratives are available as an easy tool used by millions of investors, where you can set your own assumptions, see the fair value that drops out of those inputs, and then decide whether the current price looks attractive, expensive or somewhere in between.

Narratives keep working for you after you set them up, because when new news, earnings or updated assumptions are added, the forecast and fair value refresh so your view on Berkshire Hathaway never has to stay static.

For example, one Berkshire Hathaway Narrative currently anchors on a fair value of about US$943,785 per Class A share while another uses inputs that arrive closer to US$527,846. This shows how two investors can look at the same company, plug in different expectations and end up with very different but clearly explained views on what the stock is worth.

For Berkshire Hathaway however we will make it really easy for you with previews of two leading Berkshire Hathaway Narratives:

Fair value: about US$943,785 per Class A share.

Implied discount to fair value: around 23.3% below this narrative's fair value based on the recent share price.

Forecast revenue growth: 13%.

• The author highlights Berkshire Hathaway's balance sheet strength, with low leverage and sizeable cash reserves that can support acquisitions, reinvestment or buybacks.
• The narrative focuses on a disciplined value investing approach, with an emphasis on businesses that have durable competitive advantages and fit within Berkshire's core areas of expertise.
• Succession to Greg Abel is framed as a continuation of the existing playbook, with the view that Berkshire's financial position and investment philosophy support a long term opportunity.

Fair value: about US$604,196 per Class A share.

Implied premium to fair value: around 19.8% above this narrative's fair value based on the recent share price.

Forecast revenue growth: 3.6%.

• The author views Berkshire as a diversified set of cash generative but mature businesses, with growth expectations closer to the broader economy than to high growth sectors.
• The narrative points to a shift toward larger cash and fixed income positions, which can offer flexibility but may also cap upside if equity markets perform strongly.
• Key risks include the challenge of repeating past investment success at Berkshire's current size, succession uncertainties and potential pressures on the insurance and energy operations.

To move from these previews to your own view, you can start with the bull or bear narrative that feels closest to your thinking. You can then adjust the revenue, margin and valuation assumptions and see how your fair value compares with the current share price.

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.