the balance sheet was strong, and the company was growing at 20-30 percent a year. What was wrong with this story? The p/e ratio of 42, based on the S&P estimate of 1992 earnings. Any growth stock that sells for 40 times its earnings for the upcoming year is dangerously high-priced, and in most cases extravagant. As a rule of thumb, a stock should sell at or below its growth rate—that is, the rate at which it increases its earnings every year. Even the fastest-growing companies can rarely achieve more than a 25 percent growth rate, and a 40 percent growth rate is a rarity.
