Buffett Brain · Research note
Score updated 29 Oct 2026 · analysis from 1 Jun 2026
CAT· Industrials
Caterpillar
Caterpillar is a wonderful, cyclical machine builder priced at a punishing 44 times earnings.
Buffett fit
Partial fit
Owner
42
Durability
81
Management
79
Price
2
Score updated 29 Oct 2026 · analysis from 1 Jun 2026
Buffett's checklist
Each number against Buffett's bar, and where it ranks among Industrials stocks in our database.
How much profit the business makes on each dollar invested in it. Higher is better.
What is left of each sale after the cost of making the product. A high number often means pricing power.
The cash the business earns for its owners, compared with the price of the whole company.
How fast sales grew each year over the last five years.
How many years of today's profit you pay for at today's price. Lower means cheaper.
How much the company owes compared with what it owns outright. Lower is safer.
The four pillars
How the business measures up on each of Buffett's four tests.
If I owned all of Caterpillar at this price, I would be paying 44 times what it earned last year, which is a steep entry fee for a business tied to the construction cycle.
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The durability here is real and earns its 81 score. Caterpillar has stood for nearly a century, its dealer network is hard to copy, and the worst earnings drop in recent memory was a manageable 14.7 percent.
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Management has done right by owners, and the 79 score reflects it. They have shrunk the share count by roughly 3.8 percent a year, turned every dollar of earnings into more than a dollar of free cash at a 1.16 conversion ratio, and kept returns on capital in the teens.
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There is no here, and that is the whole problem. A 44 and a 2.5 percent owner-earnings yield mean you are paying tomorrow's prices for today's cyclical earnings, with the peak of the cycle baked in.
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- The full reasoning behind all four pillars
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For and against
The strongest points on each side, with the numbers behind them.
In its favor
7- 1Durable century-old franchise with a durability score of 81 and a shallow worst-case earnings decline of just 14.7 percent.
- 2Disciplined have reduced the share count by 3.8 percent a year, lifting EPS growth to 12.2 percent against 7.3 percent revenue growth.
- 3High-quality earnings, with running at 1.16 times net income.
- 4Solid returns on capital, a 15 percent five-year even after a softer 12.4 percent trailing year.
Concerns
7- 1The stock is brutally expensive at 44 times earnings and 40.5 times EV to , earning a valuation score of just 2.
- 2The owner-earnings yield is a meager 2.5 percent, below a risk-free Treasury, so you are paid almost nothing to wait.
- 3Earnings are cyclical and tied to construction and mining, and buying near a peak multiple compounds the downside.
- 4 sits at 2.3 and net debt is 2.5 times EBITDA, a meaningful load if the cycle turns.
Price history
$713+249.7%· 5-year return
Weekly closing prices. Touch or hover the line for a date.
The business
How the business works
Caterpillar sells and finances heavy equipment for construction, mining, and energy, the yellow iron you see on every job site. It earns a 32.5 percent and a 16.6 percent on that hardware, with an additional financing arm clipping interest. Revenue has compounded at a steady 7.3 percent and earnings per share at a livelier 12.2 percent, helped along by .
How this analysis has moved
The call has held across 6 reviews.
Sep 27, 2026 → Oct 29, 2026
What other investors would say
The same company, judged by three other documented playbooks.
Keep researching
Similar companies in Industrials
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