Bill Ackman has just released his 2019 Annual Report in which he reported that during the year ended December 31, 2019, PSH’s NAV increased 58.1%, ending the year at $26.94 per share. Over the same period, the S&P 500 increased 31.5%. He also recommended that investors ignore price-earnings multiples in the existing environment and stated that there are many compelling bargains in the equity markets right now. Here’s an excerpt from the report:
It is important to be reminded that the value of a business is the present value of the cash it generates over its life. While many investors and market commentators use the heuristic of assigning a price-earnings multiple to analyst estimates of next year’s earnings, this simplistic approach is not valid for the current environment, as the next 12 months of earnings are not representative of the true long-term earnings power of most companies.
The revenues and earnings for the majority of businesses over the next year or so will be extremely poor, and in some cases disastrous, but for companies with strong balance sheets, dominant market positions, and which do not need access to capital, the virus will likely only disrupt the next 12 to 24 months of cash flows. In a discounted cash flow valuation of a company, the loss or disruption of the first, and possibly second, year of cash flows, does not generally destroy more than 5% to 10% of the value of the business. The fact that many stocks have declined by 30% to 60% or more from levels that did not appear to be overvalued suggests that there are many compelling bargains in the equity markets.
You can read the entire report here: Pershing Square Holdings 2019 Annual Report.
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