Don't look now, but dot-com-related tech is getting a multiple. And it couldn't be happening soon enough, because -- without a multiple -- these companies will soon begin the slow decline toward oblivion.

First, what does it mean to have a multiple? Let's step back a bit and go over this new economy/old economy conundrum. We have been so deluged with this bogus dichotomy that it pays to figure out for a second where it all came from.

To explain it, I am going to revert to the

National Gift Wrap and Box Company


National Gift

dichotomy. National Gift Wrap is an integral part of the old economy. It sells boxes and bags to retailers. The retailing universe grows probably 3% to 4% a year. It is hard for National Gift to grow much faster than its clients grow. When people buy stocks, they want rapid earnings growth. It is hard to get rapid earnings growth in the staid gift-wrap industry. When institutional money managers try to ascribe a valuation to National Gift they look at their universe of stocks and say, "This one grows no better than mid-single digits at best." (It might occasionally grow a tad faster than its clients if it expands into new markets and produces more value-added products than in the previous year.)

That puts National Gift's growth at the low end of the

S&P 500

. Let's say National Gift will earn $1 this year, and maybe $1.07 next year. If the average S&P 500 company is growing earnings at, say, 10%, you are going to pay less for National Gift's earnings than that average. Let's say the average company sells at 20 times earnings, you will pay some fraction of that 20 multiple for National Gift's earnings. You wouldn't want to pay more, because, frankly, it isn't growing faster than the average company. You wouldn't want to pay nothing, however, because it is growing and it generates a return.

Let's say the market ends up paying 12 times earnings for National Gift Wrap And Box Company. You would say that National Gift has a lower multiple than much of the S&P, but it may not necessarily be "cheap" because the market is looking for growth and may penalize a company with subpar growth -- making it cheaper and cheaper. (This is what happened to the so-called value stocks during this era.)

National Gift Wrap & Box Company has another division, National Gift, which runs a business-to-business Web site allowing retailers to go online nationwide and buy boxes and bags cheaply. The dot-com also becomes the packaging middleman for a whole host of products.

Initially, this company is making no money. So it doesn't even have a multiple. It is all about potential. In year No. 1, it might make $5 million in revenue (sales) and contact an investment banker about going public. It will tell the banker that in year No. 2, it might be able to make $30 million in revenue, and that it would not be surprised if it could triple revenue in year No. 3 because the market is growing so rapidly.

As the market is totally enamored of growth, it would not be unusual for National to be valued high, if not higher than National Gift Wrap & Box Company, the staid maker of boxes and bags for retailers --

even though one is profitable and slow-growing and the other is extremely unprofitable and fast-growing


Editor's note: Check out the continuation of Slouching Toward a Multiple later today!

James J. Cramer is manager of a hedge fund and co-founder of At time of publication, his fund had no positions in any stocks mentioned. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at