Many worried about it when
Warren Buffett (Trades, Portfolio) didn’t want to invest during the tech boom of 2020. As a result, he has a lot of money in the bank, improved financials, and his stocks are of considerable value.
Berkshire Hathaway’s (BRK.A, Financial)(BRK.B, Financial) Class A stock has performed well over the past year with a 36% increase. Rising prices also resulted in improved profit margins. The gross and continuing operations and net margins of the company grew year over year by 214.61%, 372.66% and 375.79%.
The company’s profits were mainly generated by gains in investments in railways, energy and utilities.
Money is king
Berkshire is the only traditional stock to hold as much cash as tech stocks.
Marketable company securities are not included in this equation because accounting principles state that 20 to 50% and 50% to 100% ownership in companies must have their own line on the balance sheet.
However, we can conclude that Berkshire will likely spend the money on other acquisitions and potentially further increase the fair value of the business.
Price-to-earnings and price-to-sell ratios are both below historical averages and well below index values. This in the midst of a period of higher stock returns is an indicator of relative value.
From an absolute valuation standpoint, by weighing all the assets, liabilities and outstanding shares, we can determine that Berkshire Hathaway holds significant value.
Taking all this into account, ($ 629.51 billion in enterprise value – $ 115.22 in debt + $ 144.06 billion in cash – $ 8.391 billion in minority interests) / 623.46K, equates to $ 1.043 million per share, an increase of an additional 137%
Investors should consider that the cash will be used for further acquisitions, decreasing the redemption value and increasing minority interests, so they should be discounted. Nonetheless, I expect the stock to beat the index by a wide margin.
Investors can expect Berkshire’s Class A shares to thrive as available liquidity allows the company to make further acquisitions while remaining liquid. Berkshire has traded well over the past year gaining 36%. For a low beta action to work so well, it’s amazing; it is obvious to invest.
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