Multiple Expansion Explodes As Dow Revenue Stagnates

Posted by on February 2, 2017 1:58 pm
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This is quite interesting. As Wolf Richter of Wolf Street explains….

“Apple, whose revenues have skyrocketed by over 1,000% since 2006, from $19.3 billion to $216 billion, became a Dow component in 2015, replacing AT&T. And its revenues weren’t part of the 30 Dow components until 2015.

“So here’s what the aggregate revenues of the Dow components look like without Apple (blue columns) and without Apple but with AT&T (brown columns). A pure stagnation fest:”

He goes on to offer analysis that, “In both scenarios, revenues in 2016 were lower than they had been in 2008. Only 2009 and 2010 were lower. So in terms of revenues, 2016 was for the Dow components ex-Apple the worst year since 2010! And this despite the five-year binge in acquisitions!”

That is to say, 2016 revenues were more or less, on par with 2010 revenues. During the same period of time the Dow has managed to climb 100% higher.

How is that for multiple expansion?

I am not a financial genius by any measure, far from it, but it appears that investors today are incredibly excited to pay double per unit of revenue as compared to 2010. It might be all fun and games until the same multiple expansion swings the other way.