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Non-Tech : Home Depot (HD) -- Ignore unavailable to you. Want to Upgrade?

To: Terrence Von Holidae who wrote (626)	5/8/1999 2:02:00 AM
From: Toby Zidle	Read Replies (1) \| Respond to of 1169

A company's annual- sales to market- capitalization is a common determination of value("market-cap valuations"). This is what may come to meet between the two companies. Terrence, two things come to mind as I review your statement. 1.) In your message which began our series of dialogues (#603), just as you did not mention the word "multiple", neither did you mention the word "sales". If we were supposed to infer that you meant to reference "multiples" or "sales" from your msg #603, then I have to maintain that extracting information from between the lines of your postings is a complex task indeed. 2.) "A company's annual- sales to market- capitalization is a common determination of value("market-cap valuations")." I have to strongly disagree here with your premise that this is a common measure of value. On dozens of web sites that report fundamental data on U.S. corporations, I don't recall this ratio being reported by any of them. The two most common measures for comparing companies on the basis of sales are 'sales per share' (reported in ValueLine) or 'price-to-sales ratio'. I see no inherent reason to consider either of these inferior to a measure using company market capitalization. For a web site that reports numerous fundamental value measures on HD, I refer you to this one by Market Guide: wysiwyg://47/http://www.marketguide.com/mgi/ratio/4366N.html Regardless of the use of ANY of these ratios, I have to argue with your simplistic premise that between two companies ANY of these ratios "may come to meet" in the middle. Absolutely untrue! Some companies are more successful than others by virtue of superior management, business strategies, product development and marketing, etc. When comparing more successful with less successful companies, these sales measures will diverge (NOT converge)! When measures that had been diverging begin to converge, look for fundamental changes in management quality, product differentiation, advertising strategies, etc. The trend is NOT a measure of stock overvaluation or undervaluation. .............. There is an excellent book by William O'Neil, "How to Make Money in Stocks", that explains why expensive stocks are often the best investments. They are expensive because they have long-term records of success, they are faster growing, they have better management, they consistently improve profit margins, etc., etc. Cheap stocks, on the other hand, have often missed earnings expectations, have undistinguished management, have failed to keep pace with product improvements, have lost touch with consumer needs, etc. As an example of two companies both in the computer data storage device industry, compare EMC Corp. (EMC $100) with Iomega Corp. (IOM $5). I would never consider selling my postion in EMC [if I had one] to invest in IOM, for all the reasons I gave you above. To sum up, cheap is not necessarily good, expensive is often expensive with good reason. And value measures between two companies do NOT meet in the middle.