The Global Capitalist

PetroChina’s (NYSE: PTR) IPO today in Shanghai made the Chinese oil and gas producer the most valuable company in the world, more than doubling the market capitalization of its closest competitor.

The IPO, which was priced around $2.24/share, rose to well over $5/share, while raising $9 billion for the company’s coffers. PetroChina, which trades in Hong Kong, Shanghai, and New York, now currently has a market cap of $1 billion dollars, the first company to ever reach that landmark. The world’s second largest company, Exxon Mobil, boasts a market cap of less than $500 billion, making PetroChina the most valuable company in the world by far.

Our opinion of the situation is that such a grossly overvalued company can not support a stable stock price. PetroChina has some major flaws including the fact that it is majority owned by the Chinese government, and its accounting systems have been questioned. It is certainly the premier energy player in the world’s most exciting marketplace, but to justify its current stock price would mean that a triple digit P/E ratio would be justifiable for this stock. While in very rare situations, a triple digit P/E ratio can be an accurate valuation for a small, growing, very promising company, it will certainly never be justified for a company with a valuation of $1 trillion dollars. This event could very well be the poster child for the Chinese stock market bubble collapse that should occur over the next 18-24 months.