Buffett’s One-Year Retirement Anniversary: The “Buffett Premium” Turns into a “Discount,” Berkshire Down 13%. Is the Stock Undervalued?

Nearly a year after Buffett announced his retirement, Berkshire Hathaway's stock price has experienced one of the worst periods of underperformance relative to the S&P 500 in its history—the once sought-after "Buffett premium" has now become a clear discount. However, several analysts believe that it is precisely this discount that makes Berkshire a noteworthy investment target at present.

Since Buffett announced his retirement at the annual shareholder meeting on May 2, 2025, Berkshire Class A shares have fallen about 13%, while the S&P 500 returned about 26% in the same period, a gap of nearly 40 percentage points. Since 2026, Class A shares have further declined about 6% to $706,000, and Class B shares have dropped to around $470, while the S&P 500 is up about 4% year-to-date.

The market’s cold shoulder is especially evident in valuation: Berkshire's stock price to book value ratio has dropped sharply from about 1.8 a year ago, a 25-year high, to less than 1.4 times today, below the average of the past three years. Meanwhile, the company restarted stock buybacks in March after nearly two years since the last repurchase.

Several analysts state, The current stock price has fully, if not excessively, reflected the market's doubts about Greg Abel's leadership abilities, and long-term investors may take this opportunity to position.

The "Buffett premium" disappears—how much discount is there?

Berkshire's weak stock price reflects market concerns over multiple factors: the fading of Buffett's personal halo, skeptical attitudes towards Abel, lackluster revenue growth, and doubts about the company’s ability to effectively deploy massive cash reserves.

At current prices, Berkshire's forward P/E ratio for expected 2026 earnings is about 23 times. But considering the company holds a large amount of low-yield cash and investments, after removing related factors, the actual P/E is in the high teens, so valuation pressure is relatively limited.

Book value has always been an important reference for Berkshire's stock price. According to Barron's estimates, The company's Q1 per-share book value is about $505,000, and the current stock price is less than 1.4 times book value.

Regarding intrinsic value, long-time Berkshire researcher Chris Bloomstran of Semper Augustus Investments gave a valuation earlier this year of $855,000 per share, about a 21% premium to the current price; UBS analyst Brian Meredith's valuation is $758,000, a premium of about 7%. Meredith gives a buy rating with a target price of $871,000, nearly 25% upside from current levels.

Solid fundamentals: cash and earnings create a safety cushion

Despite pressure on the stock price, Berkshire’s fundamentals still provide a substantial safety margin.

The company’s businesses generate about $50 billion in annual earnings, and hold about $373 billion in cash on the balance sheet which can be used for new investments. Stock buybacks this year could reach $50 billion. According to Barron's analysis based on Berkshire proxy documents, the company bought over $200 million of stock on the day it restarted buybacks (March 4), and as the stock price dropped another 3% afterward, repurchase intensity may have continued or even increased. The company will release Q1 financials and the 10-Q report on May 2 at the annual meeting, disclosing detailed buyback data.

Christopher Davis of Hudson Value Partners classifies Berkshire as the “ultimate HALO stock” (heavy asset, low obsolescence risk). He notes the durability and inflation-resistant attributes of the insurance business, and the hard-to-replicate group of industrial operations, making Berkshire especially attractive during market anxiety caused by AI disruptions, likening the current stock price to a "compressed spring ready to bounce."

Berkshire's core assets include one of North America's largest railroads, Burlington Northern Santa Fe (BNSF), one of America's largest utilities, Berkshire Hathaway Energy, as well as Lubrizol (chemicals), Precision Castparts (aerospace components), and other industrial companies.

Operational and deployment challenges facing Abel

Abel, who succeeded Buffett, does face doubts.

CFRA analyst Cathy Seifert notes that Berkshire’s operating income was almost flat last year. She says she hopes Abel will directly address existing issues and present clear plans for improving profits and revenues. UBS’s Meredith also believes that BNSF and Berkshire Hathaway Energy lag peers on key profitability metrics and have room for improvement.

On capital deployment, Abel needs to explain to the market how he’ll use the massive cash pile. Most cash can be used for investments, but a certain amount must be reserved to support the large property and casualty insurance business.

For management of the stock portfolio, Abel will personally oversee the vast majority of the $300 billion equity portfolio, while long-term investment manager Ted Weschler is authorized to manage about 6%, slightly higher than Buffett’s 5% during his tenure. Previously, Buffett envisioned Weschler and Todd Combs jointly managing the entire portfolio, but Combs left for JPMorgan in December last year for an investment role.

Analysts point out that Abel previously had no formal portfolio management experience and has focused mainly on operations, so it’s necessary to bring in more investment talent and give Weschler greater authority.

Governance structure needs improvement: board may see new blood

On governance, Berkshire’s 13-member board includes Buffett’s two children and has long tended to be loyal to Buffett. After his retirement as CEO, independence needs strengthening.

Analysts believe that Apple CEO Tim Cook—set to retire as CEO in September but remain chairman—could be an ideal candidate for Berkshire’s board. He’s highly regarded by Buffett and could bring influence and tech vision to a company not strong in technology. Currently, Berkshire owns about $60 billion of Apple stock, and analysts believe this conflict of interest can be properly handled.

Overall, several analysts believe that Berkshire's fundamentals are superior to what its stock price reflects. Chris Bloomstran expects that with book value growth, Berkshire's stock could return about 10% annually over the next decade. For long-term investors, even though the legendary investor has stepped off stage, the logic for betting on Berkshire may still hold.

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