Bill Ackman's Pershing Square Capital Management holds nearly 13% of its portfolio in Uber Technologies, betting on years of double-digit earnings growth. The firm's own research points to a compound annual EPS growth rate of 25% over the next three to five years, plus room for the stock's valuation multiple to expand.
Billionaire investor Bill Ackman, who follows Warren Buffett's investing philosophy, runs Pershing Square Capital Management. The hedge fund has nearly 13% of its entire portfolio in Uber Technologies stock, a sign of conviction in the ride-hailing and mobility company.
Pershing Square bets on 25% earnings growth
In its semiannual report released in August, Pershing Square estimated Uber's earnings per share would grow at a compound annual rate of 25% over the coming three to five years. That forecast underpins the firm's large allocation to the stock.
Uber also trades at a forward price-to-earnings ratio of 15.9, considerably cheaper than the overall market. Should the business keep performing as it has, market sentiment could improve and lift that multiple higher.
A multiple boost could add to the gains
Taken together, EPS growth of 25% a year and a richer valuation multiple form a combination that could more than triple the stock in five years. Pershing Square's large allocation to this growth stock reflects that projection.
Scale is Uber's advantage
The outlook suggests Ackman and his team most likely believe the risk from autonomous vehicles is overblown. That view rests on Uber's ability to control supply, whether from self-driving cars or human-driven vehicles, and aggregate demand through its 208 million monthly active users.
That combination of controlling supply and aggregating demand is Uber's key advantage.
Source: The Motley Fool
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