Chapter 4 suggests tracking a firm by monitoring the market’s pricing of growth over time: Is the market offering a lower price to buy growth?
There is another feature to add to the tracking: The accounting for the no-growth component of the market price. Based on anchoring information, this is an accounting without speculation about growth. If the no-growth valuation is maintained over time, but the market’s pricing of growth declines, that is worth investigating. On the other hand, if the market’s pricing of growth increases but the no-growth valuation declines, that waves a red flag. Referring to the building block diagram, the ratio of the no-growth component to market’s growth component is a metric that can be employed.