There are many good companies; yet, I was surprised to see the differences in market capitalization when comparing technology stocks with old companies:
· Amazon’s valuation of $464B is 2X Wal-Mart’s
· Tesla’s market cap is $47 billion…Ford’s is $45 billion
The question is why? Have the markets over-reacted? Or is it the brand building? The influence of a charismatic founder? The promise of self-driving cars? Flying cars?
Wal-Mart’s online revenue is growing significantly, based on acquisitions and optimization, versus Amazon convincing investors for years that their lack of profit is due to their investments for the future. Tesla sells 4K vehicles/month, while Ford sells 234K vehicles/month (Source: Recode.Net). Tesla is ramping up to produce 500K electric vehicles annually, which only represents ¼ of BMW’s sales (Source: WSJ). Tesla has yet to have a profitable quarter…yet.
Even more surprising, the technology stocks have more unpredictability in them…is this lower price due to increased risk? That’s what Microsoft’s Bill Gates said “I think the P/E multiples of technology stocks should be quite a bit lower than the multiples of stocks such as Coke and Gillette because we (technology companies) are subject to complete changes in the rules” (Source: 1998 speech to University of Washington). Instead, many of them are more expensive with P/E’s in the low 20’s vs. mid-teens for old economy (Source: Millionaire Teacher).
What kind of returns do your investors expect that drive your market capitalization?
