While Price to Earnings to Growth provides certain investors like momentum types good information, it isn't a valuable tool for value investors. They're looking for bargains based on assets or a simple price to book value measure. Rather the PEG appeals to investors looking for growth stocks that are bargain priced. The PEG revolves around the number one.

A stock with a PEG of one means that the P/E (price to earnings) ratio divided by the Growth rate are exactly the same. For example, a stock with a P/E of 15 and an earnings growth rate of 15% a year, would have a PEG of one. That tells investors that the valuation of the stock equals the growth expectations of the stock. What investors would like to find is a stock with a PEG well below one. (You can find the PEG ratio in the large quote box on AOL's Quote page or on most quote programs on the web.)

The reason PEG is very relevant now is the market's rapid rise since the lows of March. Some stocks have moved up as much as 20 times their lows. Beazer Homes (NYSE: BZH) sold for 24 cents a share at its low point. It currently sells for $5.30 a share. Still, it's below a recent high of $6.93.) What is its PEG? It's negative because the growth rate is negative for next year. PEG isn't relevant for this stock. But investors buy it because if the housing market rebounds, it will deliver a lot of earnings quickly.

Rather, take a look at IBM (NYSE: IBM) It has a PEG of 1.18. That tells an investor that the P/E ratio is 18% higher than the growth rate of the stock. Is that overpriced? Possibly. Most investors would feel more comfortable if the number was below one, inferring there was still room left for the stock price to appreciate before reaching a fair valuation, at least by the standards of a PEG ratio.

Another stock: Intel (NASDAQ: INTC). Its PEG is 1.72, well above the 1 level. Is this still a "buy"? Not if you're a momentum investor. The stock's price has put the P/E ratio well ahead of the Growth rate, making it more speculative as an investment. Still, Intel is a leader in the technology field, and there is some discussion that the tech cycle has already begun, that tech stocks will do very well over the next several years as businesses need to update their technology, as new tech applications are adapted. Investors who own the stock already believe this will be the case since the PEG is well above one.

One of the challenges in the current market is to find PEG ratios that make sense since so many companies aren't growing earnings -- they're taking losses. Check out most of the banks as a whole industry that's having problems with earnings. Health care is a good exception, however. Many of the medical device companies and prescription benefit management companies are growing nicely. Take CVS (NYSE: CVS) as an example.

CVS is known as a drug store. But it's more than that. It offers PBM (prescription benefit management) as part of its services. The stock carries a PEG of .92. Analysts expect earnings to grow by 14% next year, but the P/E ratio is 13 for comparison categories. That suggests to momentum investors that this is a growth stock worth looking into. (For a more full write-up on CVS, see www.theonlineinvestor.com.

Remember that PEG is only one data point, and one data point doesn't make a good or bad investment. Many valuation ratios need to be considered, looked at in their historical contexts, and weighed. What's good for a momentum investor may not be good for a value investor or vice versa. The PEG ratio, however, is great place to do a reality check on stocks that have come from way down in the dumps.

If you're looking at stocks for shorter holding periods, this is a ratio you'll want to keep an eye on for all your stocks. If any one of them has PEG too far above one, it may suggest that investors who believe in the stock's growth have already bought it and that future price gains may be difficult.

Ted Allrich is the founder of The Online Investor, founder of Allrich Investment Management, LLC, as well as the author of the book Comfort Zone Investing: Build Wealth and Sleep Well at Night. In this weekly column, he offers advice to investors who are just getting started.