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Should Value Investors Buy Meritage Homes (MTH) Stock?

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Here at Zacks, we focus on our proven ranking system, which places an emphasis on earnings estimates and estimate revisions, to find winning stocks. But we also understand that investors develop their own strategies, so we are constantly looking at the latest trends in value, growth, and momentum to find strong companies for our readers.

Of these, perhaps no stock market trend is more popular than value investing, which is a strategy that has proven to be successful in all sorts of market environments. Value investors use fundamental analysis and traditional valuation metrics to find stocks that they believe are being undervalued by the market at large.

In addition to the Zacks Rank, investors looking for stocks with specific traits can utilize our Style Scores system. Of course, value investors will be most interested in the system's "Value" category. Stocks with "A" grades for Value and high Zacks Ranks are among the best value stocks available at any given moment.

One company value investors might notice is Meritage Homes (MTH - Free Report) . MTH is currently sporting a Zacks Rank of #2 (Buy), as well as an A grade for Value. The stock is trading with P/E ratio of 6.29 right now. For comparison, its industry sports an average P/E of 11.54. Over the last 12 months, MTH's Forward P/E has been as high as 15.53 and as low as 3.90, with a median of 9.98.

Value investors also love the P/S ratio, which is calculated by simply dividing a stock's price with the company's sales. This is a prefered metric because revenue can't really be manipulated, so sales are often a truer performance indicator. MTH has a P/S ratio of 0.72. This compares to its industry's average P/S of 0.75.

Finally, we should also recognize that MTH has a P/CF ratio of 7.60. This metric focuses on a firm's operating cash flow and is often used to find stocks that are undervalued based on the strength of their cash outlook. This company's current P/CF looks solid when compared to its industry's average P/CF of 8.76. MTH's P/CF has been as high as 11.28 and as low as 3.69, with a median of 8.78, all within the past year.

Value investors will likely look at more than just these metrics, but the above data helps show that Meritage Homes is likely undervalued currently. And when considering the strength of its earnings outlook, MTH sticks out at as one of the market's strongest value stocks.


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