Berkshire Hathaway's Operating Earnings Fell: Is the Value Stock a Buy at an All-Time High?

Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) blasted to a new all-time high on May 2 just in time for its 60th annual meeting in Omaha, Nebraska, last Saturday.

The stock is crushing the S&P 500 (SNPINDEX: ^GSPC) year to date. It's up 14%, compared to a 4.5% decline in the index. The winning streak goes beyond the past few months. Berkshire has outperformed the S&P 500 during the past year and past three years, and has nearly tripled during the past five years while the S&P 500 has doubled.

The gains come even as Berkshire has been reducing its investments in equity securities and building up its cash position. Last year, Berkshire cut its holdings in its largest position, Apple, by roughly two-thirds and slashed its Bank of America stock holdings, which was its second-largest position.

On Saturday, Berkshire released its first-quarter 2025 results, which showed a 14% decline in operating earnings.

With the stock up a lot, and earnings down, investors may be getting concerned about Berkshire's valuation. Let's dive into the results and some key comments from Chief Executive Officer Warren Buffett during the annual meeting to see if the value stock is worth buying.

Image source: The Motley Fool.

Berkshire Hathaway's 3 levers

Berkshire can be divided into three basic categories -- the value of its controlled businesses, investments in equity securities, and its cash, cash equivalents, and Treasury bills (T-bills), which are usually referred to simply as its cash position since Treasury bills are liquid.

As of March 31, Berkshire's cash position was $347.68 billion. As of May 2, the market value of Berkshire's equity securities -- which consists of positions in public companies like Apple, American Express, and Coca-Cola -- was worth $277.41 billion, and its market cap was $1.163 trillion. That means the market values the rest of its controlled businesses at $537.9 billion.

Berkshire's composition has changed dramatically. Consider that just three years ago, as of March 31, 2022, Berkshire's cash position was $106.26 billion, its equity securities were valued at a whopping $390.54 billion, and its market cap was $778.63 billion -- meaning the value of its controlled companies was just $281.83 billion.

Now, if Berkshire had some splashy acquisition that made a meaningful contribution to operating earnings during the past few years, then it would make sense why its controlled companies would be worth so much more. But Berkshire hasn't done that. It has made a few moves here and there, like buying the remaining 8% of Berkshire Hathaway Energy and insurer Alleghany for $11.6 billion. But that's not enough to move the needle by hundreds of billions of dollars in just a few years.

A well-diversified cash cow

Berkshire's sale of public equities and rise in market cap put pressure on its controlled businesses to perform. To the delight of investors, they have.

Berkshire is coming off a record year of operating earnings in 2024, fueled by its insurance businesses. Operating earnings were down in first-quarter 2025 compared to first-quarter 2024, mainly because of lower insurance underwriting earnings and foreign exchange losses.

Data source: Berkshire Hathaway. *Other mainly includes changes in currency exchanges, interest, and dividend income.

Insurance underwriting is the difference between premiums collected and claims paid. This figure can swing wildly based on upticks in catastrophic event claims. Last year was an exceptional year for underwriting, so there was already an expectation that underwriting would come down some this year.

Investment income is the stable stalwart. It represents the return Berkshire gets on its float. Float is the sum of premiums collected that haven't been paid out in claims. It's basically a huge pile of interest-free cash that Berkshire can invest. Granted, Berkshire has a reputation for being conservative with its float so that it could pay a surge in claims if needed without jeopardizing its financial stability.

Based on $2.893 billion in insurance investment income for the quarter, simple math tells us that Berkshire is earning an annualized 6% return or so on its float.

Overall, Berkshire's operating earnings are solid, but earnings from key segments like BNSF railroad and its manufacturing, service, and retailing businesses were little changed year over year. So it's not like these segments are growing at a breakneck pace.

During the annual meeting, Buffett emphasized Berkshire's long-term perspective and why he doesn't get caught up in short-term changes in operating performance:

We don't do anything based on its impact on quarterly and annual earnings. There's never been a board meeting I can remember or a conversation I had with Charlie [Munger] when I said if we do this our annual earnings will be this and therefore, we ought to... whether it's accounting or anything. The number will turn out what it'll be, what counts is where we are five, or 10, or 20 years from now.

Berkshire is a decent buy for patient investors

Berkshire's market cap has far outpaced gains from its public equity investments, which means that most of the gains should be attributed to its controlled businesses. These businesses have been boosting operating earnings at a good pace, but there's no denying that Berkshire as a whole simply isn't as good of a deal as it used to be.

Berkshire could still be a good buy for investors who value its growing cash position and management's decision to focus less on buying pieces of public securities and more on expanding its wholly owned subsidiaries. However, the more Berkshire's stock price outpaces the growth rate of its controlled business, the more extended its valuation will become.

Should you invest $1,000 in Berkshire Hathaway right now?

Before you buy stock in Berkshire Hathaway, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Berkshire Hathaway wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $611,589!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $697,613!*

Now, it’s worth noting Stock Advisor’s total average return is 894% — a market-crushing outperformance compared to 163% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of May 5, 2025

American Express is an advertising partner of Motley Fool Money. Bank of America is an advertising partner of Motley Fool Money. Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Bank of America, and Berkshire Hathaway. The Motley Fool has a disclosure policy.