Berkshire Hathaway Inc. (NYSE:BRK.A) shareholders might be concerned after seeing the share price drop 10% in the last quarter. But that doesn’t change the fact that the returns over the last five years have been very strong. We think most investors would be happy with the 149% return, over that period. We think it’s more important to dwell on the long term returns than the short term returns. Only time will tell if there is still too much optimism currently reflected in the share price.
Let’s take a look at the underlying fundamentals over the longer term, and see if they’ve been consistent with shareholders returns.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During five years of share price growth, Berkshire Hathaway achieved compound earnings per share (EPS) growth of 56% per year. This EPS growth is higher than the 20% average annual increase in the share price. Therefore, it seems the market has become relatively pessimistic about the company.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
It’s probably worth noting that the CEO is paid less than the median at similar sized companies. It’s always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. It might be well worthwhile taking a look at our free report on Berkshire Hathaway’s earnings, revenue and cash flow.
Berkshire Hathaway shareholders gained a total return of 8.9% during the year. But that was short of the market average. It’s probably a good sign that the company has an even better long term track record, having provided shareholders with an annual TSR of 20% over five years. Maybe the share price is just taking a breather while the business executes on its growth strategy. It’s always interesting to track share price performance over the longer term. But to understand Berkshire Hathaway better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we’ve spotted 1 warning sign for Berkshire Hathaway you should know about.
We will like Berkshire Hathaway better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.