Oil giant Saudi Aramco shares a couple of traits with Apple Inc. and Microsoft Corp.: a market capitalization measured in the trillions of dollars, and a stratospheric price-to-earnings ratio. Unlike those tech behemoths, though, Aramco’s valuation relies more on smoke and mirrors than the market’s collective wisdom.
That matters because the Saudi government, which directly and indirectly still controls 98% of the company’s equity after its 2019 initial public offering, is now mulling whether to sell more shares.
Technically, there’s nothing unreasonable about Aramco’s valuation, currently sitting just above $2 trillion and making it the world’s third-largest publicly traded company. After all, willing buyers and sellers set the price transparently on the stock market. That’s how companies are valued in a capitalist system.
The problem is the quality and breadth of that price discovery. The liquidity in Aramco shares is abysmal: a daily average of just $51 million worth of stock changed hands over the past year, according to data compiled by Bloomberg. Compare that with nearly $2 billion for Exxon Mobil Corp. For Apple and Microsoft, the figures are $11.2 billion and $7.5 billion, respectively.
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