How does Jim Cramer decide when to pull the trigger on a stock?
Although the "Mad Money" host does considerable research, which includes investigating the pedigree of management, understanding the company's industry position, looking at strength of profit margins and more, one of the most influential metrics he always considers is something called the PEG ratio.
That may sound a little complicated, but Cramer says it's only one calculation away from the P/E ratio, which is likely familiar to most investors.
(For P/E ratio, take the price of a stock, P, and divide by its earnings per share, E. The result equals M, the multiple or price to earnings multiple.)
The widely talked about P/E multiple allows you to compare companies on a relative basis. However the P/E multiple alone isn't enough to draw a conclusion; "there's no price to earnings multiple that's always attractive," Cramer said.
That's where growth enters the equation which ultimately determines PEG.