U.S. Markets close in 1 hr 27 mins
  • S&P 500

    4,687.58
    +95.91 (+2.09%)
     
  • Dow 30

    35,739.62
    +512.59 (+1.46%)
     
  • Nasdaq

    15,694.08
    +468.92 (+3.08%)
     
  • Russell 2000

    2,268.97
    +65.49 (+2.97%)
     
  • Crude Oil

    72.11
    +2.62 (+3.77%)
     
  • Gold

    1,786.00
    +6.50 (+0.37%)
     
  • Silver

    22.56
    +0.30 (+1.33%)
     
  • EUR/USD

    1.1261
    -0.0025 (-0.2252%)
     
  • 10-Yr Bond

    1.4700
    +0.0360 (+2.51%)
     
  • Vix

    21.85
    -5.33 (-19.61%)
     
  • GBP/USD

    1.3238
    -0.0023 (-0.1708%)
     
  • USD/JPY

    113.5650
    +0.0750 (+0.0661%)
     
  • BTC-USD

    51,137.06
    +1,786.09 (+3.62%)
     
  • CMC Crypto 200

    1,316.56
    -4.71 (-0.36%)
     
  • FTSE 100

    7,339.90
    +107.62 (+1.49%)
     
  • Nikkei 225

    28,455.60
    +528.23 (+1.89%)
     

Is Now The Time To Put Berkshire Hathaway (NYSE:BRK.A) On Your Watchlist?

  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
·4 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.

So if you're like me, you might be more interested in profitable, growing companies, like Berkshire Hathaway (NYSE:BRK.A). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

See our latest analysis for Berkshire Hathaway

Berkshire Hathaway's Earnings Per Share Are Growing.

If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. As a tree reaches steadily for the sky, Berkshire Hathaway's EPS has grown 34% each year, compound, over three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. Not all of Berkshire Hathaway's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers I've used might not be the best representation of the underlying business. Berkshire Hathaway shareholders can take confidence from the fact that EBIT margins are up from 17% to 52%, and revenue is growing. That's great to see, on both counts.

In the chart below, you can see how the company has grown earnings, and revenue, over time. Click on the chart to see the exact numbers.

earnings-and-revenue-history
earnings-and-revenue-history

While we live in the present moment at all times, there's no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for Berkshire Hathaway?

Are Berkshire Hathaway Insiders Aligned With All Shareholders?

Since Berkshire Hathaway has a market capitalization of US$636b, we wouldn't expect insiders to hold a large percentage of shares. But we are reassured by the fact they have invested in the company. Notably, they have an enormous stake in the company, worth US$111b. Coming in at 18% of the business, that holding gives insiders a lot of influence, and plenty of reason to generate value for shareholders. So it might be my imagination, but I do sense the glimmer of an opportunity.

It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. A brief analysis of the CEO compensation suggests they are. For companies with market capitalizations over US$8.0b, like Berkshire Hathaway, the median CEO pay is around US$11m.

The CEO of Berkshire Hathaway only received US$380k in total compensation for the year ending . That looks like modest pay to me, and may hint at a certain respect for the interests of shareholders. CEO compensation is hardly the most important aspect of a company to consider, but when its reasonable that does give me a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of a culture of integrity, in a broader sense.

Does Berkshire Hathaway Deserve A Spot On Your Watchlist?

Given my belief that share price follows earnings per share you can easily imagine how I feel about Berkshire Hathaway's strong EPS growth. If you need more convincing beyond that EPS growth rate, don't forget about the reasonable remuneration and the high insider ownership. This may only be a fast rundown, but the takeaway for me is that Berkshire Hathaway is worth keeping an eye on. What about risks? Every company has them, and we've spotted 1 warning sign for Berkshire Hathaway you should know about.

Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.