Billionaire investor Bill Ackman, who follows Warren Buffett’s philosophy when picking businesses, runs Pershing Square Capital Management. The hedge fund firm he founded has nearly 13% of its entire portfolio in Uber Technologies (NYSE: UBER). Clearly, the market wizard is bullish on the ride-hailing and mobility enterprise.
One reason why Ackman is so optimistic on Uber is precisely the catalyst that can result in the growth stock skyrocketing in the next five years.
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In Pershing Square’s semiannual report released in August, it was revealed that the asset management firm estimates that Uber’s earnings per share (EPS) will increase at a compound annual rate of 25% over the coming three to five years.
Besides robust bottom-line gains, there is a possibility that Uber’s valuation multiple expands. As of this writing, the stock trades at a forward price-to-earnings ratio of 15.9. This is considerably cheaper than the overall market. Should the business keep performing well as it has, market sentiment can improve.
Taken together, EPS growth of 25% per year and a higher valuation multiple is a recipe for a stock that could more than triple in five years.
This upbeat perspective means that Ackman and his team most likely believe the risk from autonomous vehicles is overblown. This view makes sense. Uber’s ability to control supply, whether from self-driving cars or human-driven vehicles, and aggregate demand (with its 208 million monthly active users), is its key advantage.
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