Sum-of-the-Parts Valuation: Pricing a Conglomerate Piece by Piece

Some companies run one business. Plenty of others run several, genuinely different ones under a single stock ticker — and valuing that kind of company with one blended P/E or EV/EBITDA multiple can hide more than it reveals. Sum-of-the-parts (SOTP) valuation takes the opposite approach: value each distinct business segment separately, using the method and peer multiple appropriate to that segment's own industry, add the pieces together, then subtract net debt and any corporate-level costs that don't belong to a single segment to arrive at total equity value.

Berkshire Hathaway is one of the most-cited real-world examples of why this matters. It isn't one business — it's insurance operations (including GEICO), the BNSF railway, Berkshire Hathaway Energy's utility operations, a large collection of wholly-owned manufacturing and retail subsidiaries, and a substantial portfolio of publicly traded minority stakes, all under one holding company. Analysts covering Berkshire typically value the public equity portfolio directly at its market value, apply insurance-appropriate methods (often tied to book value) to the insurance operations, apply railroad-industry multiples to BNSF, utility-industry multiples to the energy business, and so on — then sum it all up, because no single multiple could honestly represent a railroad, a utility, an insurer, and a stock portfolio all at once.