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!

Seagate Technology (NYSE: STX) is sporting a way-low PEG ratio of 0.4 today. The bottom line is expected to grow by about 11.5% a year over the next five years, and the stock is trading at a ridiculous 4.8 times trailing earnings.

Here's how Seagate stacks up against some of its closest competitors in the computer storage market:


Trailing P/E Ratio

5-Year Earnings
CAGR Forecast

PEG Ratio





Western Digital (NYSE: WDC)




STEC (Nasdaq: STEC)




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

Western Digital and Seagate are the traditionalists in this market, still selling many more magnetic-disc drives than memory-based solid state drives. You can see the market putting a premium on the up-and-coming SSD technology where STEC makes its living. But both Seagate and Western Digital are working on SSD products, and there will always be a market for big-and-cheap storage solutions of the old-school kind. These two stocks strike me as fabulous bargains today, with Seagate offering the deepest discount and arguably a better strategy.

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 Seagate a little better. This stock rocks!

Fool contributor Anders Bylund holds no 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.