Jim,
We are (rapidly) moving from the industrial age into a technological or information age, for want of a better name. Book value was extremely important when the physical plant, which could be sold off, constituted a main factor of a company's value. Today many companies have evolved to something new. For example...
An industrial company such as GM needs physical plant and equipment costing $102B to produce $164B in revenues,
wsrn.com
Further, is a buggy whip company, selling at 50% of book value, a better investment?
On the other hand, if I start, say, a software company from an office in my home, and that company produces revenues of $10M a year with the potential to continue to do so for the foreseeable future, then the industrial age book value certainly has less meaning as a metric in evaluating my company's fair stock price. Based on a GM comparison, my company (giving my home a value of $100K and my office 20% of that) should only be producing about 32K of revenue.
Mr. Paul Levy, the DELL thread's celebrated economist, has frequently pointed out that it is very difficult to assess a technology company's "fair" market value, especially in terms of growth potential, and has importuned the more knowledgeable of you(us) to provide him a working metric. I can see that 'historical' methods are seriously flawed, but am certainly not qualified to try to establish a better one. Personally, I believe that any such metric devised, will be a function of the PriceEarnings/Growth ratio.
DELLish, 3.
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