The proportion of Berkshire Hathaway (WKN: A0YJQ2 ) is worth more than the sum of its parts, at least in terms of stock market valuation. When we compare the book value per share at the current price, we usually see a premium that we pay for the share.
Do you want a more or less current insight? You’re welcome. Berkshire Hathaway’s book value per share at the end of 2021 was about $233. At the current price level of US$301, the price-to-book ratio is 1.3. As I said: It’s a certain bonus.
But why are investors willing to pay more than the sum of the parts? In any case, there is no conglomerate discount here. For a good reason? Maybe.
Berkshire Hathaway: This is why it is more than the sum of its parts!
Berkshire Hathaway stock is something of an exception to the rule for many investors. This is primarily due to Warren Buffett and his recipe for success. Historically, the star investor has had an average return of over 20% per year, which is why investors are not pursuing a deep value approach here, but rather a value approach. But with a certain instinct for premiums, because the star investor is likely to make good investment decisions with a long-term perspective.
But Warren Buffett also makes sure that his own stock is, in a sense, traded at a premium. The star investor has stated in recent years that he always considers share buybacks of up to 1.5 times the book value. Sometimes he even did it on a larger scale. Although his initially preferred value was 1.2 times this figure. Nevertheless: This shows that even the value-oriented star investor himself considers a premium to be justified.
In the end, the bet on a higher valuation target is one that has very often paid off. Berkshire Hathaway has increased book value per share from $141 to $223 in the past five years alone. Concretely, this means that Warren Buffett could gradually increase the intrinsic value of his own shares. In that respect, an investment thesis always worked, even if we had to pay a little more than the intrinsic value. Good companies that create values and should increase in value in the long term nevertheless enable returns over certain periods.
It is justified as long as…
The fact that Berkshire Hathaway’s stock is trading above its own book value seems justified. At least as long as the star investor and his team remain good at buying and holding shares in top companies that successively increase net worth. Or buy companies in their entirety that also contribute to increasing value.
In fact, the stock isn’t even very expensive right now. Foolish investors can therefore take a closer look with a long-term perspective. Despite a price-to-book ratio that is above the 1 mark.
The article Berkshire Hathaway: Worth more than the sum of its parts? first appeared on The Motley Fool Germany.
Our best stock for 2022
There’s one company whose name is getting a lot of buzz from analysts at The Motley Fool these days. It’s for us THE best investment for 2022.
You could also benefit from that. To do this, you must first know everything about this unique company. So now we have one free special report prepared which introduces this company in detail.
Click here to download this report now for free.
Vincent owns shares in Berkshire Hathaway. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and recommends the following options: short January 2023 $200 put on Berkshire Hathaway (B shares), short January 2023 $265 call on Berkshire Hathaway (B shares) and long January 2023 $200 call on Berkshire Hathaway (B shares).
Motley Fool Germany 2022