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Market Cap Growth vs Share Price Growth



February 26, 2014 – Comments (0)

A common misconception with stock investors is that once a market has been "saturated" and a company migrates into it's mature phase, the potential for capital appreciation is over.  There's not much left for the likes of WMT, XOM, etc, right?  Growth investors want young (sometimes relatively unproven) companies that still have potential for growth.

But this thinking has some flaws to it.  For mature companies with strong capital allocation policies, the compounded growth in the price of shares will vastly outpace the compounded growth of the Market Cap of the company.  This is achieved through effective share buybacks and reduction in share count.

I found a pretty neat tool that I've been playing with that highlights this concept - very clearly.

The generated charts show historical share prices and historical market caps.  The chart will also highligh the cumulative compound % growth in each category.


Ball Corp, for instance, has seen a 478% market cap increase since 2001.  That's impressive, but not as impressive as the near 700% increase in it's per-share price over that same timeframe.  This is the power of buybacks!

Other "pretty" charts to look at are DDS, GPS, XOM, WMT, FDO...

But on the other side of the coin, companies that constantly dilute shareholders have seen their per share prices greatly lag their overall market cap growth.

A couple "culprits:" WFM and GOOG.


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