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Non-Tech : Home Depot (HD)
HD 370.45-0.2%Nov 10 3:59 PM EST
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To: Terrence Von Holidae who wrote (603)5/4/1999 7:30:00 PM
From: Toby Zidle  Read Replies (2) of 1169
 
<Lowe's common stock is approximately 50% less expensive based on a market-capitalization versus Home Depot's. .... So, I suspect, you will see a meeting somewhere in the middle between the 2 companies market-cap. valuations: Lowe's advancing, and Home Depot's declining, even while both businesses continue growing, although one demonstrably faster.>

It seems to me that you are arguing that HD and Lowe's ought to be trading (if in equilibrium) at the same market cap, i.e., a hardware store is a hardware store is a hardware store.

This, of course, is totally irrational unless they have the same revenues and the same expense levels. If your hypothesis is true, then I can hardly wait to open my own three-store hardware chain and issue stock. Voila! I ought to have the same market cap as all those other hardware chains. Why invest in hardware stocks? Just open your own stores and go public!

Now if you want to talk about equal P/E's or equal growth rates or equal revenues per employee or other measures that relate to the hardware industry in general, you might be able to generate a logical argument.

But to base your logic on market capitalization is totally fallacious.

Contrast the market caps of:
INTC vs AMD
AOL vs MSPG
DAL vs AWA
JNJ vs CNTO
BAC vs KRB

Why should any of these market caps approach the other? Some prosper; some go broke. There is no logic to meeting in the middle.
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