Ackman: Why a 20% grower can fall 5.5% in a quarter
Ackman and Israel's June 2026 letter to Pershing Square shareholders works out what a lower P/E multiple does to a stock over a quarter, a year, and five years, and where earnings growth takes over.
Pershing Square Holdings published its interim report for the six months to June 30, 2026 on August 12. 1 The letter at the front of it is signed by Bill Ackman, chief executive of Pershing Square Capital Management, and Ryan Israel, the firm's chief investment officer. 2
The half year was poor on the numbers the report leads with. Net asset value per share fell 12.6% while the S&P 500 returned 10.2%. The share price fell 23.9%, and the discount at which those shares trade to net asset value widened from 24.1% at the start of the year to 34.0% at the end of June, then 35.0% by August 11. 2
The same report says the businesses inside the portfolio did well. The letter gives the market's first half a narrow shape: two of the S&P 500's 24 sectors, semiconductors and technology hardware and equipment, supplied nearly 85% of the index's gain while holding 8% of its companies and 22% of its market value. More than 90% of the index's companies together contributed less than 2% of its return, and nearly 40% of them fell in price. 2
A portfolio built away from those two sectors can report improving businesses and falling marks in the same half year. The letter's answer to that is arithmetic. It works out what a lower price-to-earnings multiple does to a stock at three holding periods, and how the answer changes as the years pass.
The passage
"In the short term, the impact of a reduction in a company's P/E multiple can easily overwhelm the positive impact of a company's earnings growth. For example, if over a three-month period a company were to grow its EPS by 5% (one quarter of a 20% annual rate), its share price should increase by 5%, assuming its P/E multiple remains unchanged over the same period. However, if the multiple the market assigns to the company earnings declines by 10% over the same period, its share price should decline 5.5%, as the five percent increase in earnings in the quarter is insufficient to overcome the valuation impact of the 10% lower P/E multiple. Over time, high rates of earnings growth overwhelm the short-term impact of multiple compression. For example, if a company's P/E multiple declines 10% over the course of a year, but its EPS grows by 20%, the stock price will rise by 8%. If the company's P/E multiple stays constant at a 10% lower level, but its EPS grows at 20% per year for five years, its share price will compound at 18% per year, slightly below the EPS growth of the business over the same period." 2
Two terms carry the passage. Earnings per share is a company's profit divided by its share count. The P/E multiple is the price the market pays for each dollar of those earnings.
The letter states the same point about holding periods directly:
"We have chosen to invest in businesses that have relatively high rates of EPS growth because, for among other reasons, the longer the investment horizon, the more our returns will be driven by the company's EPS growth, and the less they will be affected by the potential change in the multiple that investors assign to those earnings." 2
Ackman and Israel describe the link between price and value as a tether: "When stock prices get dislocated in the short term, the tether stretches and eventually stock prices revert to fair values." The sentence is a figure for the long-run pull they expect price to feel. Their own three examples show how little that pull has to say about a single quarter.
The arithmetic, checked
| Holding period | Growth in earnings per share | Change in the multiple | Share price outcome |
|---|---|---|---|
| Three months | 5%, one quarter of a 20% annual rate | 10% lower | 5.5% lower (1.05 × 0.90 = 0.945) |
| One year | 20% | 10% lower | 8% higher (1.20 × 0.90 = 1.08) |
| Five years | 20% a year | 10% lower once, then flat | about 17.5% a year (0.90 × 1.20 × 1.20 × 1.20 × 1.20 × 1.20 = 2.24) |
The letter's third line rounds that result to 18% a year. Multiplying its own figures gives 17.5%, a difference small enough that the argument survives it. What matters for a reader is the size of the penalty at each horizon. The same 10% cut in the multiple costs 12 points of annualized return over one year, 2.5 points over five years, and about 1.3 points over ten. Longer holding periods divide the same write-down over more years of growth.
What ten years looks like
The chart keeps the letter's two rates and stretches the horizon out to ten years: earnings per share compounding at 20% a year, and a one-time 10% cut in the multiple applied at the start and never repeated; the horizontal axis counts the years held. Every point on the lower line is arithmetic from those two assumptions, and the one-year and five-year points reproduce the letter's own figures.
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Ten years in, the annualized return reaches 18.7% and the gap to the 20% growth rate is 1.3 points. The 10% cut sits in the starting price the whole way; what shrinks is its weight on a return that has more years of growth underneath it.
What the arithmetic assumes
- The growth has to arrive, and it has to arrive per share. The letter's forecast for its own portfolio is annual EPS growth of 15% or more from every holding over the next three to five years, with about half of them at 20% or more. The arithmetic above prices what happens if that forecast is right, and the forecast stays a forecast. Because the variable is per share, a company whose total profit rises 20% while its share count rises 10% grows earnings per share by about 9%.
- The multiple has to stop falling. The five-year example holds the multiple "constant at a 10% lower level." A business whose multiple keeps falling asks each year's earnings growth to fight a shrinking price paid for those earnings, and time stops helping.
- The holder has to be able to wait. This arithmetic pays out across years, so it needs an owner who can sit through a stretch in which the marks go the wrong way. Anything that forces a sale in the middle takes the mark instead of the value.
The record this argument has to live with
The report's own performance table shows the stretches a holder of this fund has already been asked to sit through. 2
| Period | Pershing Square net return | S&P 500 total return |
|---|---|---|
| 2015 | -20.5% | 1.4% |
| 2016 | -13.5% | 12.0% |
| 2017 | -4.0% | 21.8% |
| 2024 | 10.2% | 25.0% |
| First half of 2026 | -12.6% | 10.2% |
Three consecutive years of falling net asset value while the index rose is the stretch this argument asks a holder to accept, and it runs longer than a quarter. The longer records in the same table cut both ways. From Pershing Square L.P.'s inception on January 1, 2004, converted into Pershing Square Holdings at its December 31, 2012 launch, the net return is 15.6% a year, 26 times the original investment, against 11.0% and 11 times for the S&P 500. Measured from the fund's own launch on December 31, 2012, the table shows 12.5% a year against the index's 15.2%. An investor who bought the listed shares rather than the underlying assets earned 13.5% a year across the same period, on the letter's own figures.
The discount is where the argument meets its hardest test. It widened from 24.1% to 34.0% during the first half and reached 35.0% by August 11. The report says the fund has bought back 75,692,585 of its own shares for $1.9 billion at an average discount of 29.2% since the first buyback program began in May 2017, an average price of $25.27 as of June 30, 2026. A gap between price and stated value that has lasted through nine years of buybacks is the price side of the tether taking its time. 2
Questions to carry to your own portfolio
- What earnings growth per share are you assuming for your largest holdings, and what would tell you the assumption has failed? A return that rests on the multiple carries a different risk from one that rests on the earnings.
- If the multiple on those holdings fell 10% and stayed there, would your thesis change, or would only your mood? The answer decides whether this letter's arithmetic describes your position or describes a business being repriced for a reason.
- Could anything force you to sell before the arithmetic has room to work, such as borrowed money, a redemption window, or cash you will need in the next few years? Those turn a temporary mark into a realized loss.
The performance figures and growth rates above come from the interim report and the letter inside it, including the letter's own forecasts and the report's own disclaimers. The report states that it is published for information about the fund and does not constitute investment advice.
References
- 1Pershing Square Holdings, Ltd. — 2026 Semiannual Report
pershingsquareholdings.com
- 2Pershing Square Holdings Ltd., June 2026 Interim Report
assets.pershingsquareholdings.com
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