Exxon Mobil is nearing the $500 billion dollar mark. Let's see what happened to the other $500 billion dollar companies.
Along with record oil prices Exxon Mobil is nearing records and currently valued at $468 billion dollars. Some other companies have passed this mark in the past but now some of them are worth half of their $500 billion dollar + valuations. Will Exxon Mobile be the exception?
Microsoft, GE, and Cisco were once all $500 billion dollar + companies. Have a look at the charts below:
Exxon Mobil (XOM)
Microsoft (MSFT)
Cisco (CSCO)
General Electric (GE)
As you can see, these companies couldn't maintain their $500 billion dollar valuation for long. These companies had two much of a premium placed on their stock. Cisco had a PE ratio of 80 near its peak. Microsoft had a PE ratio of over 30. GE had a PE of over 30.
The problem these companies had is that investors were placing high growth expectations for these companies. These expectations were not met and these stocks fell in value.
It becomes very difficult for a company that reaches the $500 billion dollar mark to grow at a fast rate.
Since 2004, Exxon Mobil has seen it's stock increase at a very fast rate very similar to what we have seen with the other companies listed here leading up to the 2000 stock bubble.
Exxon Mobil currently has a low PE ratio of 11 but this is based on earnings from the high price of oil. So, the PE ratio may be closer to 20 if we look at how oil prices have doubled in the past year or so. Of course, some of this is due to the weak dollar but that isn't the only factor.
Unless Exxon Mobil can increase it's growth rate overseas, most of the growth in income will have continue to come from price increases in oil. Although this has been working well in the past few years, it may be difficult to continue this rapid rate for long.
The large oil mergers during the past decade: Exxon Mobil and Chevron Texaco have helped to fuel price increases. President George Bush has also helped to keep oil prices high by creating conflict in oil rich nations such as the war in Iraq, the declaring of Iran as an "enemy," and conflict with Venezualian president Chavez.
In 2009, we may see a shift to a more peaceful relationship with OPEC countries. This may help to bring prices down which will effect Exxon Mobil's market value.
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