The most you can lose on any stock (assuming you don’t use leverage) is 100% of your money. But on a lighter note, a good company can see its share price rise well over 100%. For instance, the price of Berkshire Hathaway Inc. (NYSE:BRK.A) stock is up an impressive 185% over the last five years. In the last week shares have slid back 3.2%.
Although Berkshire Hathaway has shed US$36b from its market cap this week, let’s take a look at its longer term fundamental trends and see if they’ve driven returns.
To quote Buffett, ‘Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace…’ One way to examine how market sentiment has changed over time is to look at the interaction between a company’s share price and its earnings per share (EPS).
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 23% average annual increase in the share price. Therefore, it seems the market has become relatively pessimistic about the company.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We’re pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized 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.
A Different Perspective
We’re pleased to report that Berkshire Hathaway shareholders have received a total shareholder return of 21% over one year. Having said that, the five-year TSR of 23% a year, is even better. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For instance, we’ve identified 1 warning sign for Berkshire Hathaway that you should be aware of.