Cheap stocks are great, but sometimes you get what you pay for. What's the use of a bargain-basement P/E ratio if the company can't grow? I have a long investment horizon and a high tolerance for risk, so I'm more interested in promising growth stocks than stodgy dividend machines.

To find stocks that satisfy my need for speed while also going on sale at a great price, I like to look at the PEG ratio. It's such a Foolishly useful metric that we've been known to call it the Fool Ratio. Divide the trailing P/E ratio of a stock by the estimated five-year earnings growth, and you have a neat little package representing the growth-adjusted value of the company. A fairly valued stock should land near the 1.0 mark. Higher numbers might indicate an overvalued security. A strong business with a low PEG ratio rocks!

Western Digital (NYSE: WDC) is sporting a way-low PEG ratio of 0.34 today. The bottom line is expected to grow by about 12% a year over the next five years, and the stock is trading at a ridiculous 4.1 times trailing earnings.

Here's how Western Digital stacks up against some of its closest competitors in the data storage market:

Company

Trailing P/E Ratio

5-Year Earnings CAGR Forecast

PEG Ratio

Western Digital

4.1

12.0%

0.34

Seagate Technology (Nasdaq: STX)

3.3

11.5%

0.29

STEC (Nasdaq: STEC)

12

16.0%

0.75

SanDisk (Nasdaq: SNDK)

7.5

14.3%

0.52

Source: Yahoo! Finance. CAGR = compound annual growth rate.

It's actually hard to find a stock in this sector that doesn't look like a screaming bargain. While Seagate and STEC focus mostly on enterprise storage deals and original equipment manufacturers' parts for system builders, SanDisk and Western Digital are much more direct-to-consumer oriented. The other dichotomy is between storage systems built around flash memory chips (STEC and SanDisk) or chiefly spinning magnetic platters (Western Digital and Seagate). So if you see more promise in large, inexpensive drives for consumer-level systems than anywhere else, Western Digital is your pick.

What to do next
As with all simple tools, the PEG ratio isn't a silver bullet to solve your portfolio's every quandary. It is, however, a great starting point for further research -- fellow Fool Joey Khattab has shown low-PEG stocks beating the market in a 1,000-ticker sample.

With a ludicrously low PEG ratio backed up by a strong business, I'd say that you should get to know Western Digital a little better. This stock rocks!

Fool contributor Anders Bylund doesn't hold a position in any of the companies discussed here. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.