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I am just beginning my studies in finance and I have noticed that Berkshire Hathaway has an extremely high value for EPS (ttm) and I couldn't find out why. I have compared it to some other financial companies and to some tech companies as well, and it seems way far off. Is this correct? Why is it and what does this mean?

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Additionally, it seems that it is extremely high because it is the most expensive stock, but why is it like this? Why didn't they split the shares? What are the pros and cons of this strategy?

sources:

https://finviz.com/quote.ashx?t=BRK-A

  • I wonder why this comment was deleted ? – Fattie Oct 22 at 11:05
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The main reason Berkshire Hathaway's earnings-per-share stands out so much is that they have an exceptionally low number1 of exceptionally high-priced shares2. Their share price is currently about $316,000/share, compared to $100/share or less for the next five companies in your table. Indeed, if you calculate what I've called earnings-per-hundred-dollars-worth-of-share, then for the first few entries in your table you get something like:

Stock   Share Price($)   Earnings-per-share   Earnings-per-$100
-----   --------------   ------------------   -----------------
BRK.A      316,312          13,690                   4.33
JPM            100               7.66                7.66
BAC             24               2.01                8.37
C               43               5.12               11.91
MS              50               5.93               11.86
WFC             22               0.37                1.68

Prices to nearest dollar as at 21/10/2020

The last column shows roughly how many dollars you'd earn if you had invested $100 in each of the companies. Now, Berkshire Hathaway's figure is much more in keeping with the other stocks (indeed, on this measure alone, it might be considered to not be doing as well, giving back about one third of the return as from Morgan Stanley or Citigroup).


At gaefan's suggestion, it should be noted that, since 1996, Berkshire Hathaway also issue more affordable Class B shares (BRK.B). According to What is the difference between Berkshire Hathaway’s Class A and Class B shares?:

Buffet stated that the purpose of creating the Class B shares was to give smaller investors the opportunity to invest directly in Berkshire Hathaway, rather than only participating indirectly through mutual funds that mirror Berkshire Hathaway’s holdings.

They were originally created at 1/30th the price of the Class A shares and went through a 50-to-1 stock-split in 2010, meaning they are currently (October 2020) about 1,500th the price of the "A" shares at $210/share. They are also far more numerous (1.4 billion outstanding), and have a much more typical EPS(ttm) of $9.113. These figures give the same 4.33 for earnings-per-hundred-dollars-worth-of-share as we got earlier for the "A" shares.


1 According to Yahoo Finance's BRK.A page, considerable less than one million outstanding shares. By comparison, the pages for JPM and MS show 3 and 1.75 billion respectively.

2 As D Stanley rightly points out in a comment, a high EPS isn't a direct result of having a high share-price: rather, it's an indirect consequence of Berkshire Hathaway policy of having chosen not to perform stock-splits. That policy leads to an unusually low number of shares, each with an unusually high share-price. Consequently, when the total earnings (which is independent of either the number of shares or their price) is divided by the number of shares, the EPS is unusually high.

As to precisely why Warren Buffet has decided not to split Berkshire Hathaway's stock: that probably deserves a separate question (if there isn't one already). This answer says he is against "volatility", and the article it links, Why Doesn't Berkshire Hathaway Split Its Stock? includes:

[Warren Buffett] has said that he doesn't have any plans to ever split the stock. He said that he wants long-term holders of the stock, and that this high share price discourages traders and speculators.
...
To Buffett, a stock split would just be an artificial way of encouraging more small-time traders and speculators which would in turn increase the volatility of the stock. If you know Buffett, then you know that this is the antithesis of his investing philosophy.

This answer only mentions Berkshire Hathaway in passing, but links to Why Warren Buffett Is Against Stock Splits which talks about "high-quality shareholders".

3 Figure from Gurufocus's summary page; for some reason Yahoo's page shows 13,690, which is clearly the figure for BRK.A.

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    the idea that one of our fine list members realized it should be earnings-per-hundred-dollars-worth-of-share , and an actual web site that, for a living, offers such data, didn't even vaguely think of this, tell us that web sites are useless. – Fattie Oct 21 at 18:19
  • +1 for creating a new standardized metric for better comprehension :) – Gabriel Ziegler Oct 21 at 18:28
  • "main reason earnings-per-share is so high is that Berkshire Hathaway's share price is so high" This seems backwards - it's price is high because its EPS is high (or at least they're driven by the same fundamentals). It's EPS is high because is has a relatively low number of shares compared to its value. Which I guess you could say is the same as saying that "it's price is high" so maybe you could look at it both ways? – D Stanley Oct 21 at 18:34
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    @DStanley You're quite correct that high EPS isn't caused by a high share price: in my defence, I wasn't intending to imply that... more highlight that both are unusually high, and that if you adjust for the high share price, the "EPHD" looks more normal. Thanks for pointing out my ambiguity and spurring me to (hopefully) clarify things. – TripeHound Oct 21 at 20:34
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    @Fattie They do offer that, or at least the reciprocal, 4 columns to the left. What TripeHound has calculated is the Earnings-to-Price ratio (modulo the 100 factor). Normally given as the "P/E". – David Oct 22 at 8:56
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Berkshire Hathaway has consistently grown earnings. In addition, it has not split its stock since Warren Buffet took control of the company. Hence its EPS has grown. When a company splits it stock 2 for 1 then its EPS goes down by a factor of 2.

Warren Buffet has said that splitting the stock costs shareholders money and it does nothing to improve the fundamentals of the company. However, in January 2010 he split the class B shares 50 to 1.

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