For a slow-growth company to make an attractive investment, it had better be priced like a slow grower. Paying a high multiple for the earnings of a historically slow-growing company is basically a bet that the future will turn out better than the past--always a risky wager to make, especially with this type of stock.
Procter & Gamble's valuations were somewhat high at the end of 1999--higher than those of the S&P 500. That premium was justified, given the company's remarkably steady performance up to that time. However, the plunge in P&G's stock price in early 2000 brought its valuations in line with those of the broader market--justifiably so, given the market's lower expectations for the company.
Conclusion: What Do I Get in Return? >>