Assessing Berkshire Hathaway Inc’s (NYSE:BRK.A) past track record of performance is a valuable exercise for investors. It enables us to reflect on whether the company has met or exceed expectations, which is a great indicator for future performance. Today I will assess BRK.A’s recent performance announced on 30 June 2018 and evaluate these figures to its longer term trend and industry movements.
Could BRK.A beat the long-term trend and outperform its industry?
BRK.A’s trailing twelve-month earnings (from 30 June 2018) of US$47.49b has more than doubled from US$24.07b in the prior year.
Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 16.4%, indicating the rate at which BRK.A is growing has accelerated. What’s the driver of this growth? Let’s see whether it is solely attributable to industry tailwinds, or if Berkshire Hathaway has seen some company-specific growth.
Over the last few years, Berkshire Hathaway grew its bottom line faster than revenue by successfully controlling its costs. This has caused a margin expansion and profitability over time.
Inspecting growth from a sector-level, the US diversified financial industry has been growing its average earnings by double-digit 17.2% in the past year, and a more muted 8.9% over the last five years. This growth is a median of profitable companies of 15 Diversified Financial companies in US including SWK Holdings, A-Mark Precious Metals and Trustco Group Holdings. This suggests that whatever uplift the industry is gaining from, Berkshire Hathaway is capable of leveraging this to its advantage.
In terms of returns from investment, Berkshire Hathaway has fallen short of achieving a 20% return on equity (ROE), recording 13.2% instead. However, its return on assets (ROA) of 7.3% exceeds the US Diversified Financial industry of 2.8%, indicating Berkshire Hathaway has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for Berkshire Hathaway’s debt level, has declined over the past 3 years from 6.1% to 4.2%.
What does this mean?
Though Berkshire Hathaway’s past data is helpful, it is only one aspect of my investment thesis. Companies that have performed well in the past, such as Berkshire Hathaway gives investors conviction. However, the next step would be to assess whether the future looks as optimistic. I suggest you continue to research Berkshire Hathaway to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for BRK.A’s future growth? Take a look at our free research report of analyst consensus for BRK.A’s outlook.
- Financial Health: Are BRK.A’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 30 June 2018. This may not be consistent with full year annual report figures.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.