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Quick summary: The most expensive (highest priced) stock on Robinhood is Berkshire Hathaway Class A (BRK.A), which is currently priced at $483,674 per share at the time of writing. However, investors should understand that when a stock is referred to as “expensive,” that typically refers to its valuation (such as P/E ratio) and not the price of the shares themselves. In fact, by many valuation metrics, Berkshire Hathaway stock is considered cheap even at its very high price per share.
The Highest Priced Stock on Robinhood is BRK.A
While Robinhood investors tend to gravitate towards lower priced shares as witnessed by the 100 most popular stocks on the app, you might be wondering, “what is the most expensive stock on Robinhood by share price?” The answer is Berkshire Hathaway A class shares, which trade for more than $483,000 for a single share at the time of writing.
Berkshire Hathaway is the holding company run by Warren Buffett, the most famous and successful long-term investor on the planet. According to calculations by the Motley Fool, if you were lucky enough to buy and hold Berkshire Hathaway A stock from inception in 1965, you would be looking at a total return of roughly 3,300,000%!
Despite its incredible return and extremely high share price, what if we told you that by most Wall Street estimates, Berkshire Hathaway A is actually still considered a “cheap” stock?
If you’re confused by this statement, it’s because you are confusing the difference between the price of the shares and the value of the shares. We explain the difference below.
The Difference Between High Price and Expensive
Most new investors to Robinhood see a low-priced stock such as Sundial Growers or OrganiGram and assume they are cheap and therefore worthy of investment because the shares could potentially go much higher.
However, conflating low price with cheap is a common and potentially big mistake. That’s because if you are only looking at the price of the shares in a vaccum, then you are looking at incomplete information.
Professional investors, on the other hand, determine whether a stock is cheap or expensive using a valuation model. This model looks at a number of different metrics that pit the current price of the stock against its actual earnings, or in some cases sales.
Here are some of the most common valuation metrics investors use when determine the value of a stock and whether it is cheap or expensive:
- Price-to-earnings, or P/E ratio – This is a metric that looks at the stock price in relation to the company’s earnings and is one of the most common valuation metrics used. You will see P/E ratio listed prominently in Robinhood, Yahoo Finance and most other financial data providers when reviewing a stock. Value investors typically look for stocks with low P/E ratios, generally under 10. Growth investors are more tolerant of higher P/E ratios because they expect the earnings to grow over time. The P/E ratio is not a one size fits all determination of how well your investment will do; Amazon has had a historically high P/E ratio and has been a wonderful investment. Likewise, Berkshire Hathaway has had a P/E ratio close to 10 or under for most of its run and has been a phenomenal investment, too. This is how, despite Berkshire’s shares trading a such a high price, its current P/E ratio of 8 makes the stock appear “cheap” to analysts.
- Price-to-sales, or P/S ratio – Many companies, especially new ones, may not have any earnings or even have negative profitability in the years after they IPO. This does not mean that the investment has no potential, however. Many companies rely on spending to capture market share in the early years before turning profitable. In these cases, P/E ratio is generally not useful and can even be misleading. For these types of unprofitable companies, analysts often prefer to look at price-to-sales ratio. Again, using the example of Amazon, its price to sales ratio fell to as low as 1.8 in 2003, according to the Motley Fool. This made the company appear extremely cheap by this metric and shareholders who bought in at that point ended up being richly rewarded. The P/S ratio does not have as much of a strict “good” or “bad” number to stay under as it is more dependent on the industry and also investors’ judgment of how fast sales may increase over time. The best approach is to compare P/S ratios of similar companies in the same industry and use the P/S ratio as a starting point for additional research.
- Price-to-book value or P/B ratio – This ratio is favored by deep value investors including the likes of Benjamin Graham, Warren Buffett’s mentor and the father of value investing. Book value is a company’s assets minus their liabilities. When investors look at P/B, they are determining how the company’s current share price compares to the hard assets of a company (e.g. Real estate holdings, inventory and cash on hand). Value investors rely on P/B to determine a margin of safety before investing, that is, if the company fails to perform and deliver earnings, investors can use P/B to see how much the company is worth in a worse case scenario. Some industries also have inconsistent earnings and P/B ratio can be helpful in providing a clearer valuation. Deep value investors tend to covert companies trading at a P/B ratio of 1 or lower, although in practice it can be very difficult to find such companies. Like all of the above metrics, P/B ratio should be used as a general starting point indicator of how expensive or cheap a stock is and not used in isolation.
It’s important to note that there are many additional ways to value a stock and many factors such as sales and earnings growth that may make the above metrics less relevant. We provided the three above as a basic starting point in determine the relative cheapness of a stock.
The “Cheap” $483,000 Stock
Bringing this all back to Robinhood’s highest priced stock, Berkshire Hathaway A, we can see how despite its eye popping share price of more than $483,000, the stock appears cheap using the basic valuation metrics above.
According to the current data listed on Yahoo Finance, Berkshire Hathaway’s P/E ratio is 8, its price to sales ratio is 1.92 and it trades at 1.37 price-to-book. These are all quite low and favorable metrics in the eyes of most value investors, who prize lower ratios to indicate a stock might be trading below its intrinsic value.
While you may fret that you will never be able to afford such high priced shares, as cheap as they are, the good news is that Berkshire Hathaway also offers B class shares, which share the same valuation attributes as the A class shares for a much more reasonable share price of $303 per share.
Another option to get exposure to Berkshire Hathaway is through an S&P 500 index fund such as SPY or IVV, which both hold Berkshire B shares among their top 10 portfolio holdings.
For a quick comparison, let’s look at the metrics for MicroVision, a Robinhood investor favorite that we profiled last year, that trades around $3 per share today. As the company does not produce regular positive earnings, P/E ratio doesn’t tell us much. Instead we can look at the price to sales ratio, which is currently above 204, and the price to book ratio, which is 4.091, according to data from Ycharts. So, despite the price of the shares being low, we can can see that on some basic metrics MVIS might be considered quite expensive.
As we have seen, some stocks that trade under $4 can be considered “expensive” while some stocks that trade over $400,000 can be considered “cheap.” Taking into account basic valuation metrics such as the ratios above give you a better indication of the true value of a stock rather than relying on the price of its shares alone.