Putting a Premium on Potential — and Discounting the Present
Any would-be stock market geniuses first have to wrestle with this seeming conundrum.
Newly-public Twitter has negligible revenue (never mind earnings), but is valued at an astronomical $32 billion.
The rationale?
The revenue and earnings will come later.
Meanwhile, Apple Computer’s $40 billion(!) in net income in 2013 fetches a relatively low price-earnings ratio.
Why?
Because investors worry that the company won’t be able to sustain that in the future.
Go figure (literally).
