Investors interested in stocks from the Building Products - Home Builders sector have probably already heard of Meritage Homes (MTH - Free Report) and D.R. Horton (DHI - Free Report) . 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 D.R. Horton are both sporting a Zacks Rank of # 1 (Strong Buy) right now. This means that both companies have witnessed positive earnings estimate revisions, so investors should feel comfortable knowing that both of these stocks have an improving earnings outlook. But this is just one factor that value investors are interested in.
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.
Our Value category highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.
MTH currently has a forward P/E ratio of 11, while DHI has a forward P/E of 12.16. We also note that MTH has a PEG ratio of 0.59. 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. DHI currently has a PEG ratio of 0.88.
Another notable valuation metric for MTH is its P/B ratio of 1.82. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. By comparison, DHI has a P/B of 2.30.
Based on these metrics and many more, MTH holds a Value grade of B, while DHI has a Value grade of D.
Both MTH and DHI are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that MTH is the superior value option right now.