Investors interested in Building Products - Home Builders stocks are likely familiar with Meritage Homes (MTH - Free Report) and NVR (NVR - Free Report) . But which of these two companies is the best option for those looking for undervalued stocks? Let's 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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Meritage Homes has a Zacks Rank of #1 (Strong Buy), while NVR has a Zacks Rank of #3 (Hold) 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 only part of the picture 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.
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 11.81, while NVR has a forward P/E of 19.31. We also note that MTH has a PEG ratio of 0.52. 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. NVR currently has a PEG ratio of 3.99.
Another notable valuation metric for MTH is its P/B ratio of 2.05. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, NVR has a P/B of 5.99.
These are just a few of the metrics contributing to MTH's Value grade of B and NVR's Value grade of C.
MTH stands above NVR thanks to its solid earnings outlook, and based on these valuation figures, we also feel that MTH is the superior value option right now.