Yahoo!

This is really getting exciting. Yahoo was up $42 yesterday, to $475 a share – its market cap is now $125 billion. If it quadruples again this year and next, it will be the first $2 trillion company. (So far, the world’s highest market cap goes to Microsoft, at around $600 billion.) Yahoo earned a solid 25 cents a share in the most recent 12 months, so who says earnings are the kiss of death for an Internet company?

Needless to say, paying $475 for an annual earnings stream of, most recently, 25 cents, seems high. Would you give me $475 if I promised to give you 25 cents a year? Would you liquidate all your assets and give me $475,000 if I promised to give you $250 a year?

But it’s not the 25 cents that has people excited. Obviously.

First Union analyst Carolyn Luther Trabuco rates the stock a strong buy at $475 – it’s cheap here! – because, according to CBS/Marketwatch, she thinks it should hit $600 in the next 12 months. What has her excited is her expectation that revenues for this past quarter will come in at $190 million. And she has upped her earnings-per-share forecast by a full penny, to 16 cents for the quarter just ended from the 15 cents she had previously anticipated. Multiply those quarterly sales and earnings expectations by four, and you have the company now selling for 164 times annual sales and 742 times annual earnings.

But of course the point is that Yahoo sales and earnings will keep growing. Otherwise, why would you pay $475 for a claim on 16 cents in quarterly earnings? You could get $8 a quarter right now from a federally-insured bank certificate of deposit.

(For those slow at math: $8 is a larger amount of money than 16 cents.)

Seriously. Let’s say you earn $20 an hour after tax. In about 25 hours, you would earn enough to buy one share of Yahoo. You could take $475, after tax, in cash, for your hard work. Or you could choose, instead, your claim on an expected 16 cents in Yahoo quarterly earnings. (Not that you would actually get the earnings, in spendable cash. But theoretically they would be yours.)

Which do you want in return for all that work? An immediate $475 in cash, or a likely 16 cents this quarter and maybe 30 cents next quarter and – who knows? – maybe lots, lots more one day?

Right now, Yahoo is valued at significantly more than Ford and General Motors, combined. Toss in Dow Jones (which owns, among other things, the Wall Street Journal) . . . and Yahoo is still considered the greater prize. Only when you toss in the New York Times Company, too, does the market consider the two baskets – Basket A, containing Yahoo, and Basket B, containing Ford, GM, Dow Jones and the New York Times Company – about equal in value.

Carolyn Luther Trabuco thinks this is ridiculous. Within a year, she thinks, Yahoo will have added another 26% in market value, leaving Basket B in the dirt.

And the way things are going, I wouldn’t be surprised.