No. of Recommendations: 8
"On a a market cap basis bases on profits compared to Tesla, Amazon, Google, Apple, Nvidia?"
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Yes, compared to those companies, Berkshire is way undervalued. Absolutely no doubt. Just from the amount of cash it pulls in.
That said, I always find relative comparisons to be a very bad way to make valuations though. The reason is, is because it doesn't account for mistakes in valuations...
An excellent post on the inadvisability of relative valuation exercises. The risk comes up particularly often in "sum of parts" valuations, which don't give you the values of the parts, but the current market prices of the parts.
On the other hand, I think there is a reasonable case to be made that Google/Alphabet might not be overvalued.
Revenue/share, earnings/share, and cash flow/share have risen an average of 20%/year in the last 10 years, and 24%/year in the last 5 years. If those growth rates decayed slowly from (say) a real 15%/year next year down to 7%/year over the next decade, with multiples falling to the teens, you'd still get a decent return over the next 5-10 years. e.g., maybe 7%/year. If growth or multiples come in a bit higher, then the returns would be commensurably better.
A similar exercise could be done with Apple. The range of plausible numbers is very wide for Tesla and Amazon, so it would not be as informative.
Or for Berkshire. From today's price, maybe inflation plus 4-6%/year in a 7.5 year time frame. I hope for more, but I don't count on it. As we both agree head to head comparisons are not a good habit, but that's lower than the Alphabet scenario above.
Jim
