Savvy stock market investors kick myriad tires when examining a stock. They look at market capitalization, income, profits, quality of leadership, and dividend rate. But ultimately, the true measure of publicly-traded security is its stock price.
The Most Expensive Stock
Currently, the priciest stock trading in global markets is Berkshire Hathaway, Inc. (BRK), helmed by one of Wall Street’s most-respected stock pickers, Warren Buffett. Berkshire Hathaway’s Class-A shares briefly sold for over $350,000 per share in November 2020. (Berkshire Hathaway’s Class-B shares sold for much less, about $230 per share.)
The difference between BRK-A shares and BRK-B shares is fairly straightforward and directly impacts the share price. Class A shares are geared toward deep-pocketed investors who, like Buffett, value long-term portfolio gains, rather than short-term price swings, and are willing to pay a higher share price to get it. Class B shares provide more flexibility, along with more robust tax benefits.
On a year-to-date basis, at the end of November 2020 BRK-A had risen over $5,000 from its January 2 price of $342,261, and its consensus one-year price target was about $10,000 higher than the current price. Buffett has structured Berkshire Hathaway as a holding company for multiple companies, including BNSF, Precision Castparts, Lubrizol, MidAmerican Energy, and GEICO.
Berkshire Hathaway's share price growth is impressive. For example, if an investor had put $10,000 in BRK—about 808 shares based on the $12 stock price at the time—in 1964, that investor would have gained a whopping $208 million through mid-2017. In other terms, the stock price would have risen 1,972,595 percent from 1964 to the end of 2016. That's a tough act to follow, although other high-priced stocks also have impressive stories.
Berkshire Hathaway shares the “most expensive stock list” with Lindt & Sprüngli AG (LISN.SW), a Swiss multinational chocolatier and confectionery company. In November 2020, the company traded at around 80,000 Swiss francs per share (almost $90,000 USD), with a 9 billion franc market cap. Another member of this group is Seaboard Corporation (SEB), a multinational Fortune 500 company that deals in the agribusiness sector and transportation. Headquartered in Kansas, SEB traded at around $3,000 to $3,400 in fall 2020, with a market cap of $3.686 billion.
Market Capitalization: A Better Measure of Value
While its share price cements Berkshire Hathaway’s status as the most expensive individual stock trading these days, it’s not the largest by market capitalization. Market capitalization is the value of a publicly-traded company—calculated by multiplying the total number of shares by the present share price. The holder of this top slot changes regularly, with contenders including Microsoft Corp (MSFT), Apple (AAPL), and Amazon (AMZN).
Experts say that valuing a publicly-traded company by market cap may be a more effective method of estimating a company’s market value than by its stock price.
Market capitalization is generally a more accurate metric than the share price, based on simple math and its ability to measure a company’s value and size against other companies.
By and large, market capitalization calibrates what a publicly-traded company is valued at on global financial markets in addition to the stock market’s outlook on a given company’s prospects and what amount of money investors are willing to pay for shares of its stock.
Market capitalization can also be deployed to establish rational expectations over a given stock, and aid in formulating a solid portfolio investment strategy. While there is no technical threshold for various categories of companies, as measured by market cap, there are some approximate guidelines for investors to follow:
- Large caps are usually companies with market caps over $10 billion.
- Mid-cap companies typically range from $2 billion to $10 billion.
- Small-cap companies usually clock in at under $2 billion in market capitalization.
Each category offers its risks and rewards. For example, large-cap companies offer low but steady share price growth, often with decent dividend payments. Small-cap companies, conversely, offer investors more room for growth, albeit at higher risk. They also usually don't pay dividends.
The market cap metric favors companies such as Apple and Google. But if a share price is a true measure, Warren Buffett and Berkshire Hathaway remain the leaders.