(BRK.B), Berkshire Hathaway Inc. (NYSE: BRK-A) – Are Berkshire Hathaway shares overvalued or undervalued?
Berkshire Hathaway Inc. Stocks (NYSE: BRK-A) (NYSE: BRK-B) topped the S&P 500 in 2021, generating a cumulative total return of 19.5%.
Warren Buffett’s Berkshire Hathaway still shows strong growth numbers, but with a market cap of $ 730 billion, some investors are wondering if there is any value left in Berkshire stocks.
Earnings: A price-to-earnings (PE) ratio is one of the most basic fundamental measures to assess the value of a stock. The lower the PE, the higher the value. For comparison, the S&P 500 PE is currently around 33.9, more than double its long-term average of 15.9.
Berkshire’s PE is currently 6.1, less than a fifth of the average for the S&P 500 as a whole. Berkshire’s PE ratio is down 55.9% over the past five years, suggesting the stock is currently listed at the low end of its historic valuation range.
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Growth: Looking ahead to the next four quarters, the S&P 500 futures PE ratio looks much more reasonable at just 20.7. Berkshire futures earnings multiple of 21.4 roughly in line with the S&P 500 as a whole, which makes Berkshire stocks look quite valued.
Berkshire’s forward PE ratio is around 50% higher than its peers in the consumer discretionary sector, which currently average a forward earnings multiple of 14.
However, when it comes to valuing a stock, profits aren’t everything.
Growth rate is also critical for businesses that build their bottom line quickly. The price / earnings / growth ratio (PEG) is a good way to incorporate growth rates into the valuation process. The overall PEG of the S&P 500 is currently around 1; Berkshire’s PEG is 8, suggesting that Berkshire is currently overvalued on the basis of sales alone.
The price-to-sales ratio is another important valuation metric, especially for unprofitable companies and growth stocks. The S&P 500’s SP ratio is currently 3.1, nearly double its long-term average of 1.62. Berkshire’s PS ratio is 2.4, a significant discount to the S&P.
Finally, Wall Street analysts see at least some value in Berkshire stocks over the next 12 months. The analysts’ average price target among the three analysts covering Berkshire is $ 329, suggesting a rise of about 19.8% from current levels.
The verdict: At its current price, Berkshire stock appears to be slightly undervalued based on a sample of common fundamental valuation metrics.
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