One obscure way of measuring how efficient a company operates is the amount or sales or revenues that are generated for each employee at the company, also known as the Revenues per Employee Ratio or R/E Ratio. It is also sometimes referred to as the Sales per Employee Ratio or S/E ratio. I've written about the R/E ratio in the past a couple times, but there doesn't appear to be much interest in this metric.
The concept is simple. Let's assume there are two companies in the same industry generating the exact same amount of revenues. But Company A has 1,000 employees and Company B has 10,000 employees. Which company do you think would generate higher net earnings? Which stock do you think would perform better?
Let's take some real life examples, using the technology sector. With only 19,665 employees and raking in $182.95 billion in revenues, Google (GOOG) is by far the top large cap tech company with the highest R/E ratio at $9,303,330 for every employee. And to top things off, the stock is up 79% so far this year. Apple (AAPL) is close behind with an R/E ratio of $5,408,163 and the stock is up an amazing 127% for the year. Then there is Amazon (AMZN) at $2,746,376 per employee. Amazon has a top return year-to-date of 142%.
Now let's look at some of the tech stocks that don't have as high an R/E ratio. Yahoo (YHOO) has a revenue per employee ratio far below the others at $1,646,323 and the stock was only up 24%. Both Dell (DELL) and IBM (IBM) generate almost identical revenues per employee at $410,000 and are up about 49% for the year; not even close to the returns for Apple or Amazon. And Hewlett Packard (HPQ) only has a R/E ratio of $372,866 and has the lower year-to-date return to show for it at 38%.
So next time you are trying to decide which stock you want to buy in a particular industry or sector, take a close look at the R/E ratio.
Author owns AAPL, AMZN, and YHOO.By Fred Fuld at
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