One might be able to find a company with excellent margins, stable growth rate, a little or
even no debt on the balance sheet. However, if the company’s stock was trading at a price
extremely far in excess of the current earnings, should the stock be purchased or not? The answer
would probably be no, because the danger of investing in companies that appear overvalued is
that there is normally little room for error. The business may indeed be good, but if it suffers a
significant decline in profit, the stock price will decline significantly.