Cheap stocks are great, but sometimes you get what you pay for. What's the use of a bargain-basement price-to-earnings 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 price-to-earnings 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!

Autoliv (NYSE: ALV) is sporting a bargain-basement PEG ratio of 0.3 today. The bottom line is expected to grow by about 43.5% a year over the next five years, and the stock is trading at a very reasonable 13.1 times trailing earnings.

Here's how Autoliv stacks up against some of its closest competitors in the market for vehicle safety systems:


Trailing P/E Ratio

5-Year Earnings CAGR Forecast

PEG Ratio





TRW Automotive Holdings (NYSE: TRW)




Lear (NYSE: LEA)




Source: Yahoo! Finance.

If you ever clicked a seat belt, grabbed a steering wheel, or appreciated your car's airbags, you probably used some of Autoliv's products and/or patents. I don't like this company just because it's Swedish like me, but because it is an indisputable giant in a field that will never go out of style. Autoliv, TRW, and their Japanese rival Takata combine to control 73% of the safety-systems market -- and Autoliv holds the lion's share of that. It's no wonder why not one but two of our Foolish newsletters are recommending this stock.

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

Fool contributor Anders Bylund holds no position in any of the companies discussed here. Did you know that "alv" is Swedish for "elf"? Autoliv is a Motley Fool Hidden Gems recommendation. Motley Fool Options has recommended a covered calls position on Autoliv. Try any of our Foolish newsletter services free for 30 days. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.