Spearheaded by legendary investor Warren Buffett, conglomerate Berkshire Hathaway Inc. (BRK.B) is renowned for its exceptional investment portfolio. Moreover, the company has a track record of consistently surpassing benchmarks like the S&P 500 with its stellar performance.

In a recent communication to BRK.B’s shareholders, CEO Warren Buffet emphasized BRK.B’s remarkable outperformance, boasting a staggering return of 4,400,000% compared to the S&P 500’s 31,000% since he assumed leadership in 1965.

Additionally, the company’s fourth-quarter results showcased an unprecedented surge in its cash reserves, reaching $167.60 billion, higher than the market cap of a few major corporations in the United States.

Riding high on its record-breaking fourth-quarter and fiscal year results, BRK.B’s shares soared at the start of this week, almost reaching the $1 trillion market cap milestone. However, despite the company’s impressive success so far, Buffett’s shareholder letter injected a note of caution into the celebration.

Emphasizing the importance of moderate expectations, Buffet underscored BRK.B’s enduring commitment to stability and longevity, indicating that the era of seismic deals and extraordinary performances might be waning. He cautioned investors against overly optimistic expectations, indicating that expecting anything beyond modest improvement would be wishful thinking.

Meanwhile, BRK.B revealed yesterday the looming threat of legal action by the U.S. government against its subsidiary, PacifiCorp, alleging its failure to cover $356 million in costs associated with the 2020 Slater wildfire in southern Oregon and northern California.

In the wake of this disclosure, BRK.B’s shares tumbled due to investor apprehensions, disrupting its ascent toward the $1 trillion market cap milestone. Presently, the stock commands a market cap of $885.77 billion.

BRK.B’s shares have jumped 34.5% over the past year and 27.6% over the past nine months to close the last trading session at $408.91.

Here are the fundamental aspects of BRK.B that could influence its performance in the near term:

Strong Financials

For the fiscal fourth quarter, which ended on December 31, 2023, BRK.B’s operating earnings increased 28% from the prior-year quarter to $8.48 billion. The company’s attributable net earnings came in at $37.57 billion, up 107.8% from the year-ago value.

Meanwhile, BRK.B’s total revenue for the fiscal year (ended December 31, 2023) increased 20.7% year-over-year to $364.48 billion. Also, its net earnings and comprehensive income came in at $99.15 billion and $98.47 billion versus a net loss and comprehensive loss of $22 billion and $18.99 billion in the year-ago period, respectively.

Stretched Valuation

In terms of forward non-GAAP P/E, BRK.B is trading at 21.85x, 112.9% higher than the industry average of 10.26x. Likewise, its forward Price/Sales multiple of 2.46 is marginally higher than the industry average of 2.45x. Also, the stock’s forward Price/Book ratio of 1.47x is 44.4% higher than the industry average of 1.02x.

Mixed Profitability

BRK.B’s trailing-12-month net income and levered FCF margins of 26.40% and 19.15% are 12.2% and 3.3% higher than the 23.53% and 18.54% industry averages, respectively. On the other hand, the stock’s trailing-12-month gross profit margin of 33.80% is 43.7% lower than the 60.08% industry average.

POWR Ratings Exhibit Uncertainty

BRK.B’s fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, translating to Neutral in our proprietary rating system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. BRK.B has a D grade for Value, justified by its higher-than-industry valuation metrics.

Whereas, the stock’s B grade for Momentum is in sync with its share price currently trading higher than its 200-day moving average of $355.16 and 10-day moving average of $406.98. Meanwhile, BRK.B’s C grade for Quality is consistent with its mixed profitability metrics.

In the B-rated Insurance – Property & Casualty industry, BRK.B is ranked #43 out of the 54 stocks.    

Beyond what we’ve stated above, we have also rated the stock for Growth, Stability, and Sentiment. Get all ratings of BRK.B here.

Bottom Line

Despite its recent near brush with the $1 trillion market cap milestone, a note of caution from CEO Warren Buffet casts a shadow of doubt on the company’s potential to yield extraordinary returns in the future.

Moreover, BRK.B’s mixed fundamentals and the recent setback triggered by the looming threat of a lawsuit from the U.S. government further contribute to the prevailing uncertainty surrounding the company’s trajectory.

Nevertheless, despite all this, adopting an entirely pessimistic outlook on the company’s shares might not be a wise move. It’s important to acknowledge BRK.B’s impressive resilience, financial prowess in the fourth quarter and fiscal year results, and consistent outperformance compared to the S&P 500 index.

That being said, investors may want to consider keeping an eye on the stock for a potentially more favorable entry point.

How Does Berkshire Hathaway Inc. (BRK.B) Stack Up Against Its Peers?

While BRK.B has an overall grade of C, equating to a Neutral rating, you may check out other stocks within the Insurance – Property & Casualty industry: Unipol Gruppo S.p.A. (UFGSY), Mercury General Corporation (MCY), and Universal Insurance Holdings, Inc. (UVE), carrying A( Strong Buy) ratings. To explore more Insurance – Property & Casualty stocks, click here.

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BRK.B shares fell $1.76 (-0.43%) in premarket trading Wednesday. Year-to-date, BRK.B has gained 14.65%, versus a 6.65% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Mukherjee

Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run. More...

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