U.S. Markets close in 1 hr 25 mins

TMHC or TOL: Which Is the Better Value Stock Right Now?

Zacks Equity Research
Steel Dynamics (STLD) doesn't possess the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.

Investors looking for stocks in the Building Products - Home Builders sector might want to consider either Taylor Morrison Home (TMHC) or Toll Brothers (TOL). But which of these two stocks offers value investors a better bang for their buck right now? We'll need to take a closer look.

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 puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.

Taylor Morrison Home and Toll Brothers are sporting Zacks Ranks of #1 (Strong Buy) and #4 (Sell), respectively, right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that TMHC is likely seeing its earnings outlook improve to a greater extent. However, value investors will care about much more than just this.

Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether a company is undervalued at its current share price levels.

Our Value category grades stocks based on a number of key metrics, including the tried-and-true P/E ratio, the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.

TMHC currently has a forward P/E ratio of 7.87, while TOL has a forward P/E of 9.27. We also note that TMHC has a PEG ratio of 1.02. 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. TOL currently has a PEG ratio of 1.07.

Another notable valuation metric for TMHC is its P/B ratio of 0.94. 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, TOL has a P/B of 1.06.

These are just a few of the metrics contributing to TMHC's Value grade of B and TOL's Value grade of C.

TMHC is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that TMHC is likely the superior value option right now.


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Taylor Morrison Home Corporation (TMHC) : Free Stock Analysis Report
 
Toll Brothers Inc. (TOL) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.