Berkshire Hathaway has delivered strong share returns over the past few years, so the live question for investors is whether that performance lines up with the returns the conglomerate earns on its capital today.
- Over the past 5 years, Berkshire Hathaway has returned 86.6%, which puts the focus squarely on whether that kind of outcome is supported by the profitability of the capital it deploys.
- Berkshire’s recent push into U.S. housing, including larger positions in homebuilders and a growing footprint in construction, can influence how efficiently it puts cash to work and how much return it can extract from those long lived assets.
- If you'd rather focus on earnings, this one's for you. See why Berkshire Hathaway's 13.5x P/E tells a different valuation story.
The stock’s next move may depend on whether the returns Berkshire Hathaway earns on its capital are strong enough to justify the price investors are paying today.
For a broader view on companies where the investment case leans heavily on how effectively they put capital to work, it can help to compare Berkshire Hathaway with 29 high quality undervalued stocks.
Is Berkshire Hathaway Still Cheap on Excess Returns?
The Excess Returns model looks at how much profit Berkshire Hathaway generates above the cost of its equity capital. Berkshire’s book value is $522,225.90 per share and its average return on equity is 11.91%, which feeds into a stable EPS estimate of $65,319.23 per share. Against a cost of equity of $40,984.54 per share, that leaves an implied excess return of $24,334.69 per share, suggesting the firm is modeled to earn more on its equity base than investors are assumed to require.
On those assumptions, the Excess Returns approach and analyst inputs on future book value, which is projected at a stable $548,342.09 per share, indicate an estimated intrinsic value that is substantially above the current $810,106.00 share price. The recent push into U.S. housing, with Berkshire Hathaway becoming a top tier homebuilder, helps explain why the model emphasizes a large and growing equity base to support those excess returns over time. Find out what Berkshire Hathaway could be worth using our Excess Returns estimate.
The Berkshire Hathaway Narrative: What Would Justify Today's Price?
Simply Wall St Narratives pick up where this Berkshire Hathaway valuation puzzle leaves off. They explain which paths for future growth, profitability, and earnings would need to occur for Berkshire Hathaway's stock to be worth materially more or less than it is today. Each narrative links a fair value to a clear story about catalysts and risks, so you can monitor over time which version of events is actually unfolding on the Community page.
Community views on Berkshire Hathaway split between one group that sees more upside in the balance sheet and another that leans toward “about right” on today’s price.
Bull case: 14% undervalued
"One of the hallmarks of Berkshire Hathaway is its robust financial position, with a low debt-to-equity ratio and massive cash reserves…"
Discover why this Narrative puts Berkshire Hathaway at 14% undervalued.
Bear case: roughly fairly valued
"The numbers imply that Berkshire Hathaway shares trade below some analysts’ estimates of intrinsic value and below certain peer P/E averages…"
Explore why this Narrative puts Berkshire Hathaway at roughly fairly valued.
Berkshire Hathaway’s price is only one piece of the decision
Before deciding how Berkshire Hathaway fits into your portfolio, it is worth asking who is steering this huge pool of capital and how their pay shapes the choices they make. See who runs Berkshire Hathaway and how they are paid.
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