Answering whether Berkshire Hathaway stock is overvalued is not as simple as pulling up a single number. Because BRK.B operates as a sprawling conglomerate with insurance operations, wholly owned businesses, and a massive equity portfolio, standard valuation shortcuts can mislead you. A more honest approach means comparing metrics like P/E, price-to-sales, and PEG ratio against both sector averages and Berkshire's own historical ranges, then deciding what premium (if any) the company's structure deserves.
Key takeaways
- BRK.B valuation requires multiple metrics because no single ratio captures the full picture of a conglomerate with insurance float, operating businesses, and a stock portfolio.
- Comparing Berkshire Hathaway's P/E and price-to-sales to the S&P 500 average and to diversified financials peers gives you two different (and useful) baselines.
- The PEG ratio can flag whether you are paying for growth or just for legacy earnings, but it has real limitations with cyclical insurance earnings.
- A 5-year lookback at Berkshire's own multiples reveals what the market has historically been willing to pay, which is a better anchor than a single snapshot.
- Investors who skip the conglomerate discount question risk overstating or understating fair value.
Why standard valuation metrics get tricky with Berkshire Hathaway
Most valuation comparisons assume you are looking at a company that does one thing. Berkshire Hathaway does not cooperate with that assumption. It owns GEICO, BNSF Railway, Berkshire Hathaway Energy, Dairy Queen, and dozens of other operating businesses. On top of that, it holds a concentrated equity portfolio worth hundreds of billions of dollars, headlined by Apple. And then there is the insurance float, which is essentially money Berkshire gets to invest before it pays out claims.
This structure means that earnings can swing significantly from quarter to quarter based on unrealized investment gains and losses, which flow through the income statement under current accounting rules. A quarter where Apple rallies hard will inflate reported earnings. A quarter where equities pull back will crush them. Neither tells you much about the health of the underlying businesses.
Insurance float: Money collected from policyholders as premiums that has not yet been paid out in claims. Berkshire uses this float as a low-cost (sometimes negative-cost) source of capital to invest, which is a structural advantage most companies do not have.
So when you pull up a P/E ratio for BRK.B, you need to ask: which earnings? GAAP earnings that include investment swings, or operating earnings that strip them out? Warren Buffett himself has repeatedly told shareholders to focus on operating earnings. If you use GAAP earnings, BRK.B's P/E can look wildly cheap in one period and absurdly expensive in the next, with no change in the actual business.
Is BRK.B expensive on a P/E basis?
The price-to-earnings ratio is the first place most investors look, and it is a reasonable starting point as long as you adjust for Berkshire's quirks. Historically, BRK.B has traded at a P/E (on operating earnings) somewhere in the low-to-mid twenties range over the past five years, though that band can stretch depending on the insurance cycle and market conditions.
Compare that to the S&P 500, which has typically carried a trailing P/E in the 20 to 25 range over the same period. At first glance, Berkshire often looks roughly in line with the broader market. But here is the thing: the S&P 500 includes high-growth tech companies pulling that average up. A diversified financials peer group tends to trade at lower multiples, often in the 12 to 18 range. Against that benchmark, Berkshire commands a premium.
Whether that premium is justified depends on what you think you are buying. If you view BRK.B as a financial company, a P/E above 20 might look rich. If you view it as a diversified holding company with best-in-class capital allocation and no debt at the parent level, a premium starts to make more sense. The answer to "is Berkshire Hathaway stock overvalued on P/E alone" is genuinely "it depends on your comparison set."
What does the price-to-sales ratio tell you about Berkshire Hathaway fair value?
Price-to-sales is less commonly used for financial companies because "revenue" for an insurer includes premiums, investment income, and other items that do not map neatly onto a product company's top line. Still, it can be informative as a cross-check.
Price-to-sales (P/S) ratio: A company's market capitalization divided by its total revenue. It is most useful for comparing companies in the same industry, and less reliable when revenue streams are fundamentally different (as with conglomerates).
Berkshire's P/S ratio has historically hovered in a range that looks low compared to the S&P 500 average, often below 2.0, while the index average tends to sit higher. That makes sense: Berkshire generates enormous revenue from insurance premiums and railroad operations, both of which are high-revenue, moderate-margin businesses. A low P/S does not automatically mean cheap. It might just mean the business model naturally produces thinner margins per dollar of revenue.
Where P/S adds value is in tracking trends over time. If Berkshire's P/S ratio is meaningfully above its own 5-year average, that could signal the market is pricing in something beyond the norm, whether that is optimism about the investment portfolio, excitement about capital deployment, or just momentum. If it is below the 5-year average, that could indicate a buying window, but only if the underlying businesses remain healthy.
How to use the PEG ratio for BRK.B valuation
The PEG ratio divides the P/E by the expected earnings growth rate. In theory, a PEG of 1.0 means you are paying a fair price for growth. Below 1.0 suggests you are getting growth at a discount. Above 1.0 means you are paying a premium.
For Berkshire, PEG has real limitations. Earnings growth is lumpy because of the investment portfolio and the insurance underwriting cycle. In years with favorable claims experience and a rising stock market, earnings growth looks fantastic. In years with catastrophe losses and equity drawdowns, growth looks terrible. Neither extreme reflects the company's long-term earning power.
That said, if you smooth earnings growth over a 3-to-5-year window and use operating earnings, PEG can still give you a useful signal. Berkshire is not a high-growth company. It grows earnings at a moderate pace, driven by bolt-on acquisitions, organic growth in its operating businesses, and compounding of its investment portfolio. If the PEG ratio on smoothed operating earnings pushes significantly above 1.5, that would be a sign the market is getting ahead of itself. If it sits near or below 1.0, the stock is likely not pricing in much optimism at all.
PEG ratio: Price-to-earnings divided by the expected earnings growth rate. It adjusts the P/E for growth, making it easier to compare a slow grower to a fast grower. A PEG below 1.0 is often considered attractive, but the reliability depends entirely on the accuracy of the growth estimate.
Comparing Berkshire to its own 5-year history
One of the more reliable approaches to gauging whether Berkshire Hathaway stock is overvalued is to compare its current multiples against its own trailing 5-year averages. This sidesteps the "what peer group do you use" problem entirely. You are just asking: is the market paying more or less than it usually does for this exact collection of businesses?
When BRK.B trades at a P/E or price-to-book value meaningfully above its 5-year average, that is a flag. It does not mean the stock will drop, but it means you are paying a premium relative to recent history, and you should have a reason for doing so. Maybe the operating businesses are performing exceptionally well. Maybe Berkshire just deployed a large amount of cash into an attractive acquisition. A premium can be earned.
Conversely, when multiples dip below the 5-year average, it is worth investigating why. If the dip is driven by unrealized investment losses that are likely temporary, the underlying value has not changed much. If it is driven by deteriorating fundamentals in the operating businesses, the discount might be warranted.
You can run this kind of comparison yourself using the Berkshire Hathaway research page on Rallies.ai, which pulls together the data you need to assess where the stock's valuation sits relative to its own history.
The conglomerate discount and what it means for fair value
Wall Street has long applied a "conglomerate discount" to holding companies. The logic: a company that owns a railroad, an insurance empire, a battery company, and a candy company is harder to value and harder to manage than a pure-play. Investors typically demand a discount for that complexity.
Berkshire has historically traded at a conglomerate discount to the sum of its parts. Analysts who do sum-of-the-parts (SOTP) valuations often arrive at a fair value above where BRK.B actually trades. This is normal. The question is whether that discount is narrowing or widening.
If BRK.B is trading closer to its SOTP estimate than usual, the stock is relatively expensive by its own standards, even if headline multiples do not look alarming. If the gap between market price and SOTP is wider than usual, the stock may be undervalued despite looking average on P/E.
This is where simple screener-level analysis breaks down and deeper research pays off. Tools like the Rallies AI Research Assistant can help you work through these comparisons without building a spreadsheet from scratch.
What would make BRK.B look expensive versus fairly priced?
Let's lay out the scenarios plainly:
BRK.B looks expensive if:
- Its P/E (on operating earnings) is significantly above both its 5-year average and the diversified financials sector average.
- The PEG ratio on smoothed earnings exceeds 1.5, suggesting you are overpaying for the growth you are likely to get.
- Price-to-book is at or near the upper end of its historical range, and Berkshire's buyback activity has slowed (Buffett has said he only buys back shares when he considers them below intrinsic value).
- The conglomerate discount has narrowed substantially, meaning the market is already pricing in most of the hidden value in Berkshire's parts.
BRK.B looks fairly priced or attractive if:
- Its operating P/E is near or below the 5-year average, and operating earnings trends are stable or improving.
- The PEG ratio is near 1.0 or below on reasonable growth assumptions.
- Berkshire is actively repurchasing shares, which is a signal from management that the stock is below intrinsic value.
- The conglomerate discount is at the wide end of its historical range, meaning the market is undervaluing the sum of the parts.
Neither scenario is permanent. Valuations shift as earnings evolve, as Berkshire deploys its cash pile, and as market sentiment rotates. The point is to have a framework, not a one-time answer.
How to build your own BRK.B valuation framework
If you want to answer "is Berkshire Hathaway stock overvalued" for yourself, here is a process that works:
- Pull BRK.B's trailing operating P/E and compare it to its 5-year average. Is it above, below, or in line?
- Compare the same P/E to the diversified financials sector and to the S&P 500. Where does it sit?
- Check the price-to-sales ratio trend over five years. Is it elevated or depressed relative to Berkshire's own norm?
- Estimate a smoothed earnings growth rate (3-5 year average) and calculate the PEG ratio. Above or below 1.0?
- Look at Berkshire's buyback activity. Is the company buying back shares aggressively, modestly, or not at all?
- Consider the cash position. A large cash pile can indicate either a lack of attractive opportunities or dry powder for future value creation.
None of these steps in isolation gives you a definitive answer. Together, they paint a much clearer picture. You can explore many of these financial metrics in more depth to build your understanding of each ratio and what it actually tells you.
For screening across multiple potential investments using these kinds of valuation filters, the Rallies Vibe Screener lets you sort by metrics without needing to manually pull data for each stock.
Try it yourself
Want to run this kind of analysis on your own? Copy any of these prompts and paste them into the Rallies AI Research Assistant:
- Compare Berkshire Hathaway's valuation metrics to the S&P 500 and its own 5-year historical averages — look at P/E, price-to-sales, and PEG ratio. What would make BRK.B look expensive versus fairly priced given its unique structure as a conglomerate?
- Is Berkshire Hathaway stock expensive? Compare its P/E, price-to-sales, and forward estimates to the rest of its industry.
- Break down Berkshire Hathaway's sum-of-the-parts valuation — estimate the value of its insurance operations, BNSF, Berkshire Hathaway Energy, and equity portfolio separately, then compare to the current market cap.
Frequently asked questions
Is BRK.B expensive compared to other financial stocks?
Berkshire typically trades at a higher P/E than most diversified financial companies, which often carry multiples in the 12 to 18 range. The premium reflects Berkshire's unique asset base, including its equity portfolio and insurance float. Whether that premium is "too much" depends on whether you believe those advantages justify a higher price.
What is the best metric for BRK.B valuation?
No single metric captures the full picture. Operating P/E (excluding investment gains and losses) is a better starting point than GAAP P/E. Price-to-book has historically been Buffett's preferred yardstick for buyback decisions. Combining P/E, price-to-book, and a sum-of-the-parts estimate gives the most balanced view.
How do you determine Berkshire Hathaway fair value?
One common approach is a sum-of-the-parts analysis: value each major business segment and the equity portfolio separately, then add them up. Another approach compares current multiples to Berkshire's 5-year historical averages. Both methods have strengths, and using them together reduces the chance of a misleading conclusion.
Does Berkshire Hathaway's cash position affect its valuation?
Yes. Berkshire often holds a very large cash and Treasury bill position. That cash earns a return but typically grows slower than invested capital. A massive cash pile can weigh on returns on equity, but it also provides optionality for acquisitions or share buybacks during market downturns. How you value that optionality affects your fair value estimate.
Why does Berkshire Hathaway's P/E ratio fluctuate so much?
Accounting rules require Berkshire to include unrealized gains and losses on its equity portfolio in reported earnings. When the stock market rallies, Berkshire's GAAP earnings spike even if the operating businesses had an ordinary quarter. When the market drops, GAAP earnings can turn negative. This is why operating earnings provide a more stable basis for P/E comparisons.
Is Berkshire Hathaway stock overvalued if it trades above book value?
Not necessarily. Berkshire has almost always traded above book value because its operating businesses and investment portfolio are worth more than their accounting book values suggest. The relevant question is how far above book value the stock trades compared to its own historical range. A price-to-book ratio significantly above the 5-year average could indicate the stock is getting stretched. A ratio near or below that average could suggest it is reasonably priced.
How does the conglomerate discount affect BRK.B's valuation?
Investors historically pay less for conglomerates than the sum of their parts would suggest, because complex businesses are harder to analyze and manage. Berkshire is no exception. This means the stock can appear undervalued on a sum-of-the-parts basis even when headline multiples look normal. Tracking whether this discount is widening or narrowing over time adds useful context to any valuation assessment.
Bottom line
Determining whether Berkshire Hathaway stock is overvalued requires more than a single ratio. You need to compare BRK.B's operating P/E, price-to-sales, and PEG ratio against both sector peers and its own 5-year averages, then factor in the conglomerate discount and management's buyback signals. No shortcut replaces that layered analysis.
If you want to go deeper on valuation frameworks and how to apply them across your portfolio, explore more on financial metrics and use the tools on Rallies.ai to do your own research before making any investment decisions.
Disclaimer: This article is for educational and informational purposes only. It does not constitute investment advice, financial advice, trading advice, or any other type of advice. Rallies.ai does not recommend that any security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. All investments involve risk, including the possible loss of principal. Past performance does not guarantee future results. Before making any investment decision, consult with a qualified financial advisor and conduct your own research.
Written by Gav Blaxberg, CEO of WOLF Financial and Co-Founder of Rallies.ai.
