Famed value investor Warren Buffet’s Berkshire Hathaway Inc. (BRK.B) has emerged as one of the biggest companies in the world since he acquired it in the mid-1960s. The company saw its shares jump 22.8% in price year-to-date, thanks to its continued financial strength and its efforts to enhance the intrinsic value per share for shareholders.

However, BRK.B’s stock has gained only 1.3% over the past month. In addition, the stock has dipped 2.3% over the past three months as global supply chain problems continue to reduce the multinational conglomerate’s profitability.

While BRK.B’s stellar third-quarter performance, strategic acquisitions, and diversified earnings power have attracted investors’ attention, the company’s stock selling activity for the fourth straight quarter could be concerning. Furthermore, Berkshire’s insurers' expanding losses amid declining claim trends stemming from COVID-19 related business disruptions could hamper its brand value.

Here’s what could influence BRK.B’s performance in the coming months:

Supply Chain Issues Affect Profitability

In a recently released report, the sprawling conglomerate said that global supply chain disruptions have hampered its ability to generate profits. Its operating profit missed analyst estimates because a surge in COVID-19 cases crushed consumer spending and caused goods shortages. In addition, supply chain problems led to a substantial rise in freight and other materials costs, thereby forcing its businesses to raise prices. Also, BRK.B’s auto sales were negatively affected by the disruptions.

Selling Stocks for the Fourth Straight Quarter

BRK.B sold nearly $2 billion more in stocks than it purchased for four quarters. The company’s cash pile swelled to fresh highs of $149.2 billion in the last reported quarter. However, its equity selling activity could lead to a decline in its share price and could dilute shareholder value. Furthermore, Edward Jones analyst Jim Shanahan believes the Omaha-based businesses’ swelling cash pile is “somewhat disappointing.”

Mixed Quarterly Performance

During the third quarter ended September 31, 2021, BRK.B’s revenue increased 12% year-over-year to $70.58 million, due primarily to decent growth in revenue across its insurance, railroads, utilities, and energy segments. Its sales and service revenue rose 12.3% from the prior-year period to $36.72 million. However, the company’s investment and derivative contract gains fell 84.4% year-over-year. In addition, BRK.B’s net earnings came in at $10.64 million for the quarter, versus $30.41 million for the same period last year. Also, the company’s operating loss from insurance underwriting rose 268% year-over-year to $784 million.

Discounted Valuation

BRK.B’s 2.28x trailing-12-month EV/Sales ratio is 26% lower than the 3.08x industry average. And in terms of trailing-12-month EV/EBITDA, the company is currently trading at 5.02x, which is 48.1% lower than the 9.68x industry average. Furthermore, the stock’s 2.17 forward Price/Sales ratio compares with the 3.55 industry average.

POWR Ratings Reflect Uncertainty

BRK.B has an overall C rating, which translates to Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. BRK.B has a C grade for Quality. The company’s 41.4% gross profit margin which is 34.4% lower than the 63.1% industry average.is in sync with the grade.

In terms of Stability grade, the company has a B. This justifies its relatively low 0.91 beta.

However, BRK.B has a C Momentum grade, which is consistent with its price returns over the past three months.

In addition to the grades I’ve highlighted, one can check out additional BRK.B ratings for Growth, Sentiment, and Value here. BRK.B is ranked #43 of 54 stocks in the C-rated Insurance – Property & Casualty industry.

Bottom Line

Improved revenue growth across its insurance and other business segments in its last reported quarter, coupled with the conglomerate’s relative undervaluation, have helped BRK.B maintain a solid footing in the insurance industry. However, its swelling cash pile and the rising costs resulting from ongoing disruptions in global supply chains have added uncertainties to its prospects. As such, we think investors should wait until the company fares better in navigating the crisis.

How Does Berkshire Hathaway (BRK.B) Stack Up Against its Peers?

While BRK.B has an overall POWR Rating of C, one could check out these other A-rated (Strong Buy) stocks within the Insurance – Property & Casualty industry: Protective Insurance Corporation (PTVCB), Universal Insurance Holdings Inc. (UVE), and Fairfax Financial Holdings Limited (FRFHF).

BRK.B shares were unchanged in premarket trading Monday. Year-to-date, BRK.B has gained 23.34%, versus a 26.20% rise in the benchmark S&P 500 index during the same period.

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.

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