Billionaire Bill Ackman is one of the biggest names in the investment world. So, I always keep an eye on his moves. Last week, it came to light that Ackman has recently built up a substantial position in Uber (NYSE: UBER). I’m encouraged by this purchase as I have a large position in the S&P 500 stock myself.
A big buy
On Friday (7 February), Ackman – who runs Pershing Square Capital Management and has an investment trust on the London Stock Exchange – announced on X (previously Twitter) that he started buying Uber in January and now owns 30.3m shares. That’s roughly $2.3bn worth of stock at today’s share price.
Ackman said that he believes Uber is a high-quality business. And in his view, it’s currently trading way below its true value.
He also pointed out that the company has a great leader in CEO Dara Khosrowshahi. Ackman believes Dara has done a ‘superb job’ in transforming the company into a highly profitable and cash-generative growth machine.
We believe that Uber is one of the best managed and highest quality businesses in the world. Remarkably, it can still be purchased at a massive discount to its intrinsic value.
Bill Ackman
It’s worth noting that news of the hedge fund manager’s purchase pushed the share price up significantly. On Friday, the stock ended up 6.6%.
I’m bullish on Uber
Now, I share Ackman’s view on this stock. To my mind, there’s a lot of quality here.
Uber has a really strong brand, and in many countries it has a near monopoly in rideshare. It’s certainly the first name I think of whenever I need a ride to or from the airport or somewhere else.
It also has multiple revenue streams. Today, Uber generates revenue from rideshare, food delivery, plane/train/boat tickets, digital advertising, and more.
Additionally, its financials look very strong. Just look at the growth generated by the group last year.
| 2023 | 2024 | Increase | |
| Trips (m) | 9,448 | 11,273 | 19% |
| Gross bookings ($m) | 137,865 | 162,773 | 18% |
| Revenue ($m) | 37,281 | 43,978 | 18% |
| Net income ($m) | 1,887 | 9,856 | * |
| Earnings per share ($) | 0.93 | 4.71 | * |
| Free cash flow ($m) | $3,362 | 6,895 | 105% |
As for the valuation, I agree that it’s attractive. Currently, Uber trades at 30 times this year’s forecast earnings per share and 21 times next year’s. I see those price-to-earnings (P/E) ratios as very reasonable given the company’s market share and growth.
Is Tesla a risk?
Of course, there are risks with this stock.
One is short-term events that impact business operations. A good example here is the wildfires in California, which are likely to hit growth this quarter.
Another is regulatory intervention. Given this company’s disruptive nature, it’s often targeted by regulators.
There’s also Tesla and its robotaxis. Personally, I don’t think Tesla is going to capture the whole mobility market in the years ahead but there is some uncertainty here.
Overall though, I’m excited about Uber’s long-term potential. Given the quality, growth, and valuation, I’ve made the stock a top 10 holding in my portfolio.
This post was originally published on Motley Fool
