INVESTING: Reaching the unthinkable: $1T in revenue or market value

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One trillion dollars. The only time you hear a number that big is when government spending is the subject.

What if an American company were to hit $1 trillion in annual sales? How about an American company with a $1 trillion market value? Are these numbers possible?

The largest company in the world by revenue is Wal-Mart, which did $285 billion in sales this year. A very big number. The biggest company in the world by valuation is General Electric, which is worth $382 billion. An even bigger number. But can either reach $1 trillion?

Since we are dealing with such large numbers, let’s reduce the factor a bit and see if things get easier to see. If you found a company today doing $3 billion in annual revenue that reached $10 billion in 10 years, you wouldn’t be that surprised. While that growth rate is solid, there are dozens of firms that pull this off.

If you found a company worth $4 billion today that grew to a market value of $10 billion in five years, again you would think it was a nice move, but nothing you haven’t seen before.

If I told you Wal-Mart was going to hit $1 trillion in annual sales 10 years from now, you would say, “No way!”

The concept that large companies will see their growth rates slow down is coming into play here. Wal-Mart is lucky to grow 6 percent a year, whereas 20 years ago it consistently hit 18 percent or more. GE will grow revenue only about 5 percent this year.

A company will hit the incredible $1 trillion mark in the next 20 years or less, I think. It will probably happen with revenue before valuation, but with a sales figure that large, market value most likely won’t be far behind.

I don’t think it is going to be one of the companies already mentioned. If I had to take a shot in the dark, I would say Dell Inc. has the best chance of getting there first.

Remember, we are talking about 20 years. Today, Dell sells $55 billion in computers. The firm is worth $100 billion. Despite its size, it still grew 18 percent last year. The direct-selling model is awesome and the company still has it to itself. Whenever a piece of hardware gets hot, like digital cameras or Ipods, Dell knows how to make it cheaper and get it into our hands faster.

Another potential candidate for the first trillion-dollar member is a firm in the biotech industry. Check out Genentech Inc. and Amgen Inc. for possibilities here. If it is a biotech, I would expect to see the market value get there before the revenue.

A quick comment on current conditions. Remember what I said a few weeks ago: We are now in phase two of the bull market that began two years ago. The move higher from here can still be substantial, but it will be more selective. Also, corrections, when they occur, will be a little more volatile and deeper. My opinion, though, is that this advance still has quite a bit of upside.



Hauke is a local money manager. His column appears weekly. Views expressed here are the writer’s. Hauke can be reached at 566-2162 or at keenan@samexcapital.com.

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