Berkshire Hathaway’s stock is so rich even Berkshire is buying less of it

The powerful rally that lifted the Omaha, Neb., company’s market value above the trillion-dollar threshold has some investors and analysts thinking its shares look a little pricey. Their concern might be shared by someone who ought to know: the legendary stock picker himself.

Berkshire disclosed in August that its stock buybacks slowed to a trickle in recent months, after many periods of hefty repurchases. The company said in its quarterly report that it can buy back stock whenever Buffett, its chairman and chief executive, “believes that the repurchase price is below Berkshire’s intrinsic value, conservatively determined."

Berkshire said it bought back about $345 million of stock in the second quarter, its smallest quarterly repurchase since 2018, according to filings and news releases. In the second half of 2020, the company snapped up about $9 billion of its stock each quarter.

Bill Stone, chief investment officer at Glenview Trust, said he thinks of Berkshire as “the ultimate sleep-at-night stock," with a rock-solid balance sheet, a trusted leader and a widely diversified range of business. But he advised a client this week to wait for a pullback before buying additional shares.

“It’s certainly not a screaming buy," Stone said. “We’re not frankly anxious to add a whole lot here."

Buffett warned in his February letter to shareholders that Berkshire’s huge size, along with a shortage of attractively priced businesses to acquire, means it has “no possibility of eye-popping performance."

Berkshire is the seventh-largest U.S. company by market value and was the first U.S. company outside big tech to hit the $1 trillion mark. Apple was the first, followed by Microsoft, Alphabet and Amazon.com, according to Dow Jones Market Data. Meta Platforms followed, then Tesla and finally Nvidia, before Berkshire crossed the line Aug. 28.

Membership in the club can be fleeting. Tesla’s market value has shrunk to $734 billion, while Berkshire closed Thursday at $971 billion, according to FactSet.

Berkshire’s sprawling empire extends to many corners of the economy. It operates businesses including the insurer Geico, BNSF Railway and the retailers See’s Candies and Oriental Trading. It manages a massive stock portfolio with big positions in Apple, Coca-Cola and other household names.

Its stock has been on a tear. Class B shares have soared 26% in 2024, compared with a 17% advance by the S&P 500. Investors’ recent enthusiasm for insurers might have fueled Berkshire’s gain. Progressive shares, for example, are up 57% this year, while Allstate shares have climbed 33% and Chubb shares have risen 28%.

Class B shares traded earlier this week at 1.46 times their average projected book value, a measure of net worth, over the next 12 months, above a five-year average of 1.28, according to FactSet. Some close observers of Berkshire refrain from using standard price/earnings ratios to judge whether the company is a good buy, since fluctuations in the value of its stock portfolio can cause big swings in reported profit.

Of course, high valuations don’t necessarily signal the end of a rally, whether in Berkshire shares or the market as a whole. Stocks can continue to advance as investors put money to work and avoid—or shrug off—bad news. But for investors who carefully choose when to enter or add to a position, a rich valuation can be discouraging.

The slump in buybacks has also caught the attention of onlookers.

“That tells you a lot too about the valuation, if Buffett’s not willing to go out there and buy the stock at these prices," said Greggory Warren, a stock strategist at Morningstar.

Buffett often writes that stock repurchases can benefit shareholders by increasing their ownership of the company. But he emphasizes that buybacks are only a good deal for remaining owners if they are carried out at the right price.

“What is sensible at a discount to business value becomes stupid if done at a premium," he wrote in his February letter.

One recent development in the buyback calculation: a 1% tax on stock buybacks that went into effect last year. Repurchases by big U.S. companies slipped in 2023 but showed signs of bouncing back in the first part of this year.

Berkshire says it won’t repurchase stock if the buybacks would bring its tally of cash and Treasury bills below $30 billion, but there is little risk of that. The company’s cash hoard was nearly $277 billion at the end of June. Big sales of stocks, especially Apple, contributed to the buildup.

All in all, it looks as though Buffett thinks the best investments right now are cash and Treasurys, said Aash Shah, head of investments and senior portfolio manager at Summit Global Investments. The firm holds Berkshire shares but isn’t adding to the position at the moment.

“If Buffett’s not buying his own stock, then why should we?" Shah said.

Write to Karen Langley at karen.langley@wsj.com