Investors with an interest in Building Products - Home Builders stocks have likely encountered both Meritage Homes (MTH) and NVR (NVR). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
There are plenty of strategies for discovering value stocks, but we have found that pairing a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system produces the best returns. The proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Meritage Homes and NVR are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that MTH has an improving earnings outlook. But this is just one piece of the puzzle for value investors.
Value investors also tend to look at a number of traditional, tried-and-true figures to help them find stocks that they believe are undervalued at their current share price levels.
The Value category of the Style Scores system identifies undervalued companies by looking at a number of key metrics. These include the long-favored P/E ratio, P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that help us determine a company's fair value.
MTH currently has a forward P/E ratio of 7.94, while NVR has a forward P/E of 15.16. We also note that MTH has a PEG ratio of 0.56. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. NVR currently has a PEG ratio of 0.95.
Another notable valuation metric for MTH is its P/B ratio of 1.10. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. For comparison, NVR has a P/B of 7.34.
These metrics, and several others, help MTH earn a Value grade of B, while NVR has been given a Value grade of C.
MTH has seen stronger estimate revision activity and sports more attractive valuation metrics than NVR, so it seems like value investors will conclude that MTH is the superior option right now.
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