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Is Berkshire Hathaway Stock Too Expensive?

By Matthew Frankel, CFP® and Jason Moser - Jun 23, 2021 at 5:26AM

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Warren Buffett's conglomerate has performed very well recently, but has it gone too far?

With its stock price up by 54% over the past year, it's only natural that some investors are concerned that Berkshire Hathaway (BRK.A) (BRK.B) might be getting a little too expensive. However, in this Fool Live video clip, recorded on June 14, contributor Matt Frankel, CFP, and Industry Focus host Jason Moser explain why they're not too worried. 

Jason Moser: Okay, King Kong has a question here particularly regarding Berkshire, "Great segment, Fools. I bought Berkshire when the market crashed and they had done very well." Matt, do you think this valuation is a good time to add, where do you stand on Berkshire's valuation today?

Matt Frankel: I think of Berkshire as like an S&P index fund for people who want the ability to slightly beat the market. What I mean by that is if you buy an S&P index fund for the purpose of, you know, with the goal of getting a 10% annualized return over time. You buy Berkshire with the goal of getting like 11% or 12%. At least that's how I approach Berkshire as an investment. It's not going to be a home run but it's like an index fund with Warren Buffett running the show. The valuation is reasonable or in other stock price has gone up but the price-to-book is very reasonable stoking in a historical context with Berkshire. I am still a fan of Berkshire at these price levels. I know. I think, Jason, you said you don't own Berkshire because you prefer Markel (MKL)? If I'm correct, I'm paraphrasing.

Moser: Yeah, I mean, I had Berkshire and then I had Markel and I thought, yeah, sell Berkshire just to reinvest a decent bit of that in Markel.

Frankel: Right now, Berkshire is trading for a price-to-book of about 1.44. That is actually lower than its three-year average if you exclude 2020. In between 2017 and the end of 2019, it was right around 1.45 to 1.5 range for most of the time. In a historical context, it's still trading at a pretty low price to book value, 2020 was a giant outlier. But I think the valuation is still reasonable. Berkshire has been much more expensive at certain points in its history. I'm not worried about it from a valuation standpoint.

Jason Moser owns shares of Markel. Matthew Frankel, CFP owns shares of Berkshire Hathaway (B shares) and Markel. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and Markel. The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

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Stocks Mentioned

Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
Markel Corporation Stock Quote
Markel Corporation

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