I heard about this ratio when I was hearing a presentation from a small telecom company a long time ago, and they were comparing themselves to AT&T (T). The small telecom said that the company was generating thousands of dollars more in revenue per employee and therefore more productive than the big blue chip telecom. It's an interesting concept that can be used to compare stocks.
If you look at the technology sector, you can see some interesting comparisons. Here are some examples:
| Apple | (AAPL) | $2,218,481 |
| (FB) | $1,580,085 | |
| (GOOG) | $1,172,017 | |
| Microsoft | (MSFT) | $841,889 |
| Amazon | (AMZN) | $697,016 |
| Cisco | (CSCO) | $628,949 |
| Advanced Micro Devices | (AMD) | $551,776 |
| eBay | (EBAY) | $525,746 |
| Dell | (DELL) | $517,578 |
| Intel | (INTC) | $501,051 |
| (LNKD) | $484,973 | |
| Yahoo | (YHOO) | $395,016 |
| Hewlett-Packard | (HPQ) | $352,189 |
| Oracle | (ORCL) | $329,574 |
You would normally think that manufacturing companies would naturally have a lower Sales per Employee ratio that software or Internet company. Hewlett-Packard (HPQ) is a perfect example, which is one of the lowest on the list. However, Apple (AAPL) which is primarily a manufacturing company is at the top of the list. Cisco (CSCO), which is also in manufacturing is near the top.
Software you would expect to see higher on the list, such as Microsoft (MSFT), which is number 4. However, Oracle (ORCL), which is also a software company is at the bottom of the list.
What about returns? If you look at the top two, Apple is up 50.9% over the last 12 months, and Facebook is up 93.0%. If you look at the bottom two, Hewlett-Packard is up only 37.0% and Oracle is up only 22.5%. Maybe the Sales per employee ratio warrants a closer look.
If you like interesting stock lists like this, check out WallStreetNewsNetwork.com.
Disclosure: Author owns AAPL, MSFT, AMZN, YHOO, EBAY, INTC
By Stockerblog.com
4 comments:
Very insightful and 100% agree, but it's probably like "Moneyball" in that it will work for a while, but eventually the market catches up. E.g., company with fewer employees could be working harder, and if the employees see the company making so much money, they may eventually want a raise or leave. So it could be very meaningful in the short term - but it may not be sustainable.
I actually think that it may be meaningful in the medium term, and possibly in the long term. From the few returns I've seen, it appears that overall, the stocks with the higher Sales per Employee perform better than those with lower ratios, over a one year period.
I plan on doing more research on this in the next month or so, to see if there is any correlation over longer periods of time.
IT companies are gaining popularity with every passing day and tend to grow at a rapid speed. Software development procedures are getting purifies and verified with a brilliant merge of existing and new technologies everyday. Due to the massive demand of automation and perfection, many organizations are now opting outsourcing software development in order to meet their business needs.
Yes, this is true. Actually, it would be interesting to see if there is a correlation between outsourcing and stock performance.
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