Variable
Ignored
Companies That Will
Look Cheap
Companies That Will
Look Expensive
Expected
growth rate
during
high-growth
period
Low-growth
companies (with P/E,
P/BV and PS)
High-growth companies
(with P/E, P/BV and PS)
High-growth
companies (withPEG
ratios)
Low-growth companies
(with PEG ratios)
Length of
growth
period
Companies with
minimalorshort-lived
competitive
advantages
Companies with strong
and sustainable
competitive advantages
Risk of
equity
Companies with high
equity risk, either
because they are in
riskier businesses or
because they have
high debt ratios
Companies with low
equity risk, either
because they are in
more stable businesses
orbecausetheyareless
financially levered
Return on
equity
Companies that earn
lowreturnsonequity,
relative to theircosts
of equity
Companies that earn
high excess equity
returns
Net profit
margin
Companies thatadopt
volume leader
strategies (high
volume, low price)
Companies that adopt
price leader strategies
(low volume, high
price)