PetroChina's big. So what?

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Much ado is being made over PetroChina's debut on the Shanghai stock market today. In just a few hours on its first day of trading, the state-controlled company's market value tripled to reach nearly $1 trillion, twice the value of what is now the world's second-largest company, ExxonMobil. One trillion is an impressive number, for sure. But does it really mean anything?

For starters, let's take a look at oil prices. Undoubtedly, the fact that oil hit a record $96 per barrel last Friday contributed to the excitement over PetroChina's listing. And more fundamentally, its impressive IPO shows continuing investor confidence in China's bull market. But neither of those factors guarantee that PetroChina, or any large Chinese company for that matter, can sustain this momentum. After all, market value is nothing more than the perceived value of a company by a mass of investors at a given moment. Revenues offer a far more reliable indicator of a company's size, which is why the Fortune 500 uses them to rank the world's largest companies. Revenues measure real money, not imagined worth.

Then there is the difficulty in truly assessing a Chinese company's real value. Because companies like PetroChina are government-controlled and because the structures of such corporations can be very complicated, only a limited number of shares get floated on the public market. That scarcity can drive up prices far above those of companies whose shares are all up for grabs. In the case of PetroChina, 86 percent of its shares are still locked up by the government. As for the other 14 percent, foreign investors are only allowed to buy a small number of Chinese shares. And Chinese investors, in turn, are limited in their ability to purchase shares of foreign companies. So, comparing the value of PetroChina to that of ExxonMobil is like comparing apples to oranges. They're two completely different markets.

Obviously, I'm not saying that market value is irrelevant. Lord knows, I'm still kicking myself for not buying stock when Google had its IPO three years ago. But for a reality check, let's take a look at Google's stock price right now. Should it really be worth $720 per share?