Is Berkshire Hathaway Really Overvalued?

Mar. 2.10 | About: Berkshire Hathaway (BRK.A)

Berkshire Hathaway (NYSE:BRK.A) is up over 20% year to date, mainly because it was added to the S&P 500. Some analysts and other pundits are now saying it is overvalued.

But I took a look at the price-to-book ratio since 1995 using year-end numbers from Berkshire’s annual report, and found that BRKA still seems reasonably valued. Here are the numbers:

Berkshire Hathaway Price/Book

YEAR BOOK MKTPRC Price/Book
2009 84487 99200 1.174145
2008 70530 96600 1.36963
2007 78008 141600 1.815198
2006 70281 109990 1.565003
2005 59377 88620 1.492497
2004 55824 87900 1.574592
2003 50498 84250 1.668383
2002 41727 72750 1.743475
2001 37920 75600 1.993671
2000 40442 71000 1.755601
1999 37987 56100 1.476821
1998 37801 70000 1.851803
1997 25488 46000 1.804771
1996 19011 34100 1.793698
1995 14426 32100 2.225149
Average 1.686963
Click to enlarge

The current price-to-book ratio is about 1.4 even after the recent price runup. This is well below the 15 year price-to-book average of 1.687.

I own BRK.A in a taxable account, and would owe a fair amount of income tax if I sold it now. But I might consider a sale if the P/B ratio gets above 1.75. This is equivalent to a BRK.A price of about $150,000.

Full Disclosure: Long BRKA.