Was Warren Buffett A True Value Investor When He Bought Precision Castparts?

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Next I thought it would be interesting to do a quick examination of Precision Castparts’ historical gross (gpm) and net profit margins (npm).  I chose the period 1999 to present in order to offer a perspective on whether margins were improving or declining.  Interestingly, Precision Castparts’ gross and net profit margins have been on the upswing over the past 6 or 7 years.

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Warren Buffett often talks about the book value of Berkshire Hathaway in his reports.  Therefore, I thought it might be interesting to look at Precision Castparts’ book value (common equity per share-ceps).  As of the end of fiscal year March 2015, Precision Castparts’ book value was $76.64.  Consequently, Warren Buffett is paying approximately 3 times book, which I don’t consider a steep price for such a strong profit growth company.

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Precision Castparts has also seen strong growth in assets per share (atps) since fiscal year March 2009.  As of the end of fiscal year March 2015, Precision Castparts had assets of $136.24 per share.

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Finally, I took a look at Precision Castparts’ revenues since fiscal year-end March 2009.  Once again, I discovered strong double-digit average growth of revenues.

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Summary and Conclusions

Warren Buffett has indicated that he will utilize about $23 billion of Berkshire Hathaway’s cash and borrow $10 billion to fund the approximately 97% of Precision Castparts that he did not already own.  Although I do not feel that he necessarily stole the company, considering that he is purchasing the entire enterprise the deal seems to make sense, and is just what I would expect from Warren Buffett.  Therefore, to answer the question posed in the article title, it appears that Warren Buffett has been true to his value investing principles.  Regardless of how the reader may feel, I hope this presentation provided some additional insights into the mind and investing strategy of the venerable Warren Buffett.

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Disclosure: No position at the time of writing.

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