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Monday, June 4, 2007

Business: Market Cap

Can someone help me understand why is the market cap of retail giants like Wal-Mart, Costco is lower than their annual revenue and the market cap of tech companies like Google is 3-4 times their revenue? Stocks are priced on earnings multiple and not on revenue multiple. However, revenue gives you a good idea about size of the company and hence about the Sustainable Competitive Advantage of the company. Are we more sure about earnings growth in the tech industry than in the retail industry? I would think that the future of a tech company is more uncertain than future of a retail giant.