There are reasons why one form may be better for some companies and another for different companies but these should not be cosmetic or based on adjustments (real or imaginary) that companies and analysts may make to earnings and per share values. At the risk of stating the obvious, the PE is the market price divided by the earnings per share, but the per-share values can be impacted by how they are computed. Which means boutiques near mes will fall in value until there is a correlation or until the investors perceived the price to be more reasonable. Once I get the value of the operating assets, I deal with the deadweight cost of past option grants by valuing the 42.71 million options outstanding at $2.182 billion, primarily because the options have an average exercise price of $1.84 (well below the current stock price) and subtracting this value from the overall value of equity of $13.6 billion, before dividing by the actual number of shares (including restricted shares) of 555.2 million. The latter should then be divided by the actual number of shares outstanding to get to the value per share. In fact, stock dividends represent an even bigger pain in the neck, since they leave investors with strange share counts – 100 shares become 102 shares.
In effect, your share of the business is worth less and it will get even smaller over time, if you continue to compensate me with equity. Let’s assume that you own and run a business that has an overall value of $100 million and generates $10 million in annual income. All three companies have 10 million shares outstanding, trading at $10/share currently and their GAAP net income is $10 million. Shares should continue to see a slight rise if the market is good. If you look at my Twitter valuation in February 2014, you will see both effects in play. Since I don’t follow Twitter’s practice of adding back stock-based compensation, I forecast losses/negative cash flows for the company for the first few years before the scaling effects kick in: as revenues get larger, employee compensation will become a smaller percentage of those revenues (just like other fixed costs). It is not an expense like depreciation, which is truly non-cash and should be added back to get to cash flow.