Buy Low, Sell High: Berkshire Crushes Earnings but Buffett Warns of Slower Returns

Berkshire Hathaway (NYSE:BRKb) pleasantly surprised investors on Saturday, as the company beat expectations in both earnings per share (EPS) and sales.

The earnings per share stood at $3.92, beating expectations by 3.3%, while the sales reached $93.376 billion, surpassing analysts' forecasts by 15.7%.

Source: InvestingPro

Operating income, which accounts for profits from the company's insurance, railroads, and utilities businesses, reached $8.481 billion in Q4 2023.

It was 28% higher than the $6.625 billion for the same period last year.

For the full year 2023, operating profit was $37.350 billion, up 17% from $30.853 billion the previous year.

Berkshire also held $167.6 billion in liquid assets in the fourth quarter, a record level that exceeds the $157.2 billion held by the conglomerate in the previous quarter.

Berkshire's overall earnings, which include the company's investment gains in listed companies, more than doubled year-on-year to $37.57 billion. For the year as a whole, profits amounted to $96.22 billion.

Buffett warns investors not to expect earth-shattering returns/h2

Buffett, in his annual letter, cautioned investors about expecting remarkable returns.

He mentioned that few companies in the have the potential to significantly impact Berkshire Hathaway. Moreover, he noted a lack of substantial options for deploying capital outside the US.

In essence, Buffett conveyed that Berkshire's performance may not be exceptional.

He suggested that, based on its current business mix, Berkshire could outperform the average U.S. company and operate with a lower risk of permanent capital loss.

However, he tempered expectations, stating that anticipating anything beyond slight improvement is unrealistic.

Despite this cautious outlook, investors responded positively to Berkshire Hathaway's better-than-expected results, driving a nearly 5% gain in pre-market trading.

Get The App

Join the millions of people who stay on top of global financial markets with Investing.com.

Download Now

This prompts the question: Does the stock still have the potential for significant growth, or will gains remain limited in the near term?

Does Berkshire Hathaway still have growth potential?/h2

If analysts' forecasts are anything to go by, Berkshire Hathaway is already correctly valued, having ended last week within a few cents of analysts' average target.

Source: InvestingPro

InvestingPro's Fair Value, which synthesizes 10 financial models in the case of Berkshire, is slightly more optimistic.

But a fair value at $458.47 only reflects a limited upside potential of 9.8%, which should be largely offset by the rise already posted before the stock's trading.

However, this does not mean that this is a stock to shun. Indeed, Berkshire Hathaway's financial health score is rated "very good", which implies that it is a low-risk investment, as Buffett emphasized in his results presentation.

Source: InvestingPro

Moreover, the InvestingPro ProTips, which summarize the masses of data available for each stock in an intelligible list of strengths and weaknesses, emphasize among other strengths that "the stock trades overall with low volatility".

Source: InvestingPro

Another Tips underlines the strength of Berkshire's finances, noting that "liquid assets outweigh short-term bonds".

Source: InvestingPro

What's more, the ProTips also point out that the stock boasts solid long-term returns, particularly over the past 5 and 10 years.

Source: InvestingPro

Profitability also seems to be in no doubt, with the ProTips also pointing out that the company has been profitable over the past 12 years, and that analysts expect this to remain the case this year.

Source: InvestingPro

All these details point to a solid profile, which confirms the interest of studying the stock more closely with a view to a potential purchase.

Conclusion/h2

Once again, Berkshire Hathaway's results have exceeded expectations, which should encourage the share to continue rising.

Yet, as highlighted by the Oracle of Omaha, the broad range of the company's activities and investments suggests that outstanding returns may not be imminent.

Nevertheless, at this price point, a lower level of risk is achieved, catering to investors with a long-term perspective.

***

Did you know that one of the ProPicks InvestingPro strategies is based on Warren Buffett's investments?

Buffett's Best" portfolio uses artificial intelligence (to analyze data) and human expertise (to make decisions) to identify the best of the best in the Oracle (NYSE:ORCL) of Omaha.

This strategy has posted a total return of 363.7% over the last 10 years, for an annualized return of 16%, but there are 5 others with slightly riskier profiles that have posted much more consistent performance.

Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counseling or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. As a reminder, any type of asset is evaluated from multiple perspectives and is highly risky, and therefore, any investment decision and the associated risk remains with the investor.