Can Berkshire Hathaway grow book value per share by over 10%?

Can Berkshire Hathaway grow book value per share by over 10%?

Berkshire Hathaway (NYSE:BRK-B) stock is interestingly valued right now. With a price-to-book value ratio of less than 1.3, a US portal recently came to the conclusion that the share was undervalued. She made it onto a list of value gems that might be worth taking a closer look at now.

However, the cheap valuation also means that Berkshire Hathaway is gradually increasing its value. Ultimately, this works because the intrinsic value and the book value per share ideally grow strongly. Foolish investors are likely to be at least 10% p. a. calculate so that the stock is better than an ETF.

Overall, I believe the Warren-Buffett conglomerate has the potential to realize such value appreciation. Let’s look at the levers that are still in place.

Berkshire Hathaway: Book value growth of 10% p.a. a.?

There are many leverages Berkshire Hathaway stock possesses. The day-to-day operations are probably the most important. Again, we should use one metric here: operating income and not net income diluted by changes in the value of the stock portfolio.

If we look at the values ​​​​achieved here, we consistently find operating results between 29.97 billion and 37.5 billion US dollars for the years 2015 to 2021. For me, this is the “constant” that aims to gradually increase the value of the conglomerate. It is true that this should not lead directly to a growth in the book value of 10% per year given the now significantly larger value and the high balance sheet total. But it’s part of it.

Warren Buffett is consistently repositioning Berkshire Hathaway so that the investment company and investors can better benefit from the compound interest effect. This can happen if further investments follow. As an extremely successful investment, Apple has recently gradually increased its book value. However, the star investor is currently investing in oil stocks such as Occidental Petroleum. If these investments also increase in value in the long term and the existing portfolio performs solidly and generates free cash flows, this should also gradually increase the intrinsic value.

If in doubt, there are also share buybacks. This doesn’t make Berkshire Hathaway any more valuable as an overall concept. But share buybacks mean that, among other things, the book value per share can increase. But is that enough?

A realistic goal, long term

When making an investment, it is of course important to consistently check whether the overall package is sufficient. However, the mix of a strong, profitable business model, investments in further growth through participations and, if necessary, share buybacks seems very solid to me. We should not define this goal linearly, that too is crucial. But over the long-term, I see the potential for book value per share to grow by as much as 10% per year.

The article Can Berkshire Hathaway Increase Book Value per Share by Over 10%? first appeared on The Motley Fool Germany.

Samuel Edwards
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