Much like the way a person's weight is reduced by approximately 83.4% on the moon due to its lower gravitational force compared to Earth, the value of lower-growth companies can be significantly inflated when measured solely by PE ratios. This is where the PEG ratio comes into play, offering a more balanced valuation metric by accounting for the company's growth rate, akin to adjusting for gravity when comparing weights on different celestial bodies.
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Second Pillar of Investing - Avoid investing…
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Much like the way a person's weight is reduced by approximately 83.4% on the moon due to its lower gravitational force compared to Earth, the value of lower-growth companies can be significantly inflated when measured solely by PE ratios. This is where the PEG ratio comes into play, offering a more balanced valuation metric by accounting for the company's growth rate, akin to adjusting for gravity when comparing weights on different celestial bodies.