Warren Buffett’s Berkshire Hathaway has been buying back its own stock in recent years. The conglomerate has spent $77.8 billion on share repurchases since 2018. This is more than twice the amount Berkshire has invested in any other company in its history.
Buybacks are Buffett’s preferred way to return money to shareholders. When a company buys back its own shares, it reduces the number of shares outstanding. This increases the price per share proportionately.
Berkshire can repurchase shares whenever management wants, as long as it has at least $30 billion in cash. The company currently has a whopping $347 billion in cash, so it has plenty of room for more buybacks. However, Berkshire has not bought back any shares in the last three quarters.
This pause could be due to the transition as Buffett prepares to step down as CEO at the end of 2025.
Buffett’s buyback strategy explained
Major decisions like buybacks may be left to his successor, Greg Abel.
Berkshire stock is also trading at a price-to-sales ratio of 2.6. This is a 30% premium to its 10-year average of 2. The stock may be more expensive than Buffett would like for buybacks right now. Berkshire Hathaway could still be one of the best stocks for long-term investors to buy.
Whether Abel uses the company’s huge cash pile to buy back more stock or acquire stakes in other companies, it will likely drive the stock higher. Most of Berkshire’s revenue comes from its privately held insurance, logistics, and utilities businesses. Buffett has built the company on a foundation of cash-generating machines.
This increases the chances it will continue to thrive long after he is gone. Berkshire’s market value is now over $1 trillion. Its stock may struggle to maintain the 19.9% annual return it has delivered over the last 59 years due to its massive size.
But the quality of its assets still gives it a great chance to keep beating the S&P 500.
