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Are Investors Undervaluing Meritage Homes (MTH) Right Now?

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Here at Zacks, our focus is on the proven Zacks Rank system, which emphasizes earnings estimates and estimate revisions to find great stocks. Nevertheless, we are always paying attention to the latest value, growth, and momentum trends to underscore strong picks.

Looking at the history of these trends, perhaps none is more beloved than value investing. This strategy simply looks to identify companies that are being undervalued by the broader market. Value investors use a variety of methods, including tried-and-true valuation metrics, to find these stocks.

On top of the Zacks Rank, investors can also look at our innovative Style Scores system to find stocks with specific traits. For example, value investors will want to focus on the "Value" category. Stocks with high Zacks Ranks and "A" grades for Value will be some of the highest-quality value stocks on the market today.

One company value investors might notice is Meritage Homes (MTH). MTH is currently sporting a Zacks Rank of #2 (Buy) and an A for Value. The stock is trading with P/E ratio of 7.12 right now. For comparison, its industry sports an average P/E of 11.50. Over the past year, MTH's Forward P/E has been as high as 15.53 and as low as 3.90, with a median of 9.98.

Value investors also love the P/S ratio, which is calculated by simply dividing a stock's price with the company's sales. Some people prefer this metric because sales are harder to manipulate on an income statement. This means it could be a truer performance indicator. MTH has a P/S ratio of 0.85. This compares to its industry's average P/S of 0.91.

Finally, we should also recognize that MTH has a P/CF ratio of 8.70. This metric focuses on a firm's operating cash flow and is often used to find stocks that are undervalued based on the strength of their cash outlook. MTH's P/CF compares to its industry's average P/CF of 8.76. MTH's P/CF has been as high as 11.28 and as low as 3.69, with a median of 8.70, all within the past year.

These are only a few of the key metrics included in Meritage Homes's strong Value grade, but they help show that the stock is likely undervalued right now. When factoring in the strength of its earnings outlook, MTH looks like an impressive value stock at the moment.

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