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TMHC vs. TOL: Which Stock Is the Better Value Option?

Zacks Equity Research

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.

We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great grade in the Value category of our Style Scores system. The Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.

Taylor Morrison Home has a Zacks Rank of #2 (Buy), while Toll Brothers has a Zacks Rank of #4 (Sell) right now. Investors should feel comfortable knowing that TMHC likely has seen a stronger improvement to its earnings outlook than TOL has recently. 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 8.50, while TOL has a forward P/E of 8.57. We also note that TMHC has a PEG ratio of 0.88. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. TOL currently has a PEG ratio of 0.99.

Another notable valuation metric for TMHC is its P/B ratio of 0.98. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, TOL has a P/B of 1.15.

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

TMHC has seen stronger estimate revision activity and sports more attractive valuation metrics than TOL, so it seems like value investors will conclude that TMHC is the superior option right now.

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Taylor Morrison Home Corporation (TMHC) : Free Stock Analysis Report
Toll Brothers Inc. (TOL) : Free Stock Analysis Report
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