DuPont earned $3.1 billion on sales of $27 billion last year - both higher than Comcast - but was worth only $45 billion on the New York Stock Exchange, one-third less than Comcast, because of investors' perception it is growing more slowly.
Oil refiner Sunoco Inc. and drug distributor AmerisourceBergen Corp. sold billions of dollars more in products than either DuPont or Comcast, but their profits were smaller, and traders gave each a much lower market value. Pharmaceutical and petroleum prices may be rising, but those revenues are not going straight to the big companies' bottom line.
Bigger does not mean more profitable. Stock prices are supposed to reflect a company's future earnings capacity. While a share of the typical S&P 500 company trades at about 18 times earnings, small, low-profit companies including telemarketing contractor ICT Group Inc., of Newtown, and Internet retailer GSI Commerce Inc., of King of Prussia, have traded lately at much higher prices, compared with their earnings.
Besides comparing prices with past and expected profits, investors use an array of simple ratios to weigh competing investments. Return on assets (ROA) was popular a century ago when Claymont, Del., accountant John J. Raskob developed its use to advise the du Pont family on the diversification of the family fortune from explosives into chemicals and General Motors Corp. But service-oriented companies have few tangible assets whose value can be measured; even modern industrial companies often try to keep the property they own at a minimum, inflating their ROA.
