undefined | Better HN

0 pointsmathattack4y ago0 comments

MSFT has to figure out how to justify a 2.7 trillion market cap when their revenue is on the order of 170-180 billion. That’s a lot of sustained profitable growth.

0 comments

RC_ITR4y ago

Conveniently ignoring the fact that on that $180bn revenue, they generate $90bn in net income, resulting in a 30x P/E multiple (the actual way companies are valued), which is only slightly elevated vs. the S&P 500's historical average.

Conversely, what's wrong with McKesson, if their revenue is $250bn and growing, but their market cap is $40bn?

mathattackOP4y ago

The larger you get, the harder it is to justify outsized PE multiples. Plenty of theory and empirical research supports this.

Even with their recent 11-12% correction their PE is ~33.5. [0] That’s higher than today’s S and P PE, and more than double the long term median (~15) and mean (~16) PE. [1]

This means that the market is betting on some combination of margin expansion and outsize revenue growth.

McKesson is in another industry with different margin and growth, and is valued differently.

[0] https://finance.yahoo.com/quote/MSFT/

[1] https://www.multpl.com/s-p-500-pe-ratio

j / k navigate · click thread line to collapse