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Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put LGI Homes, Inc. (LGIH - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, LGI Homes has a trailing twelve months PE ratio of 9.23, as you can see in the chart below:
This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 19.96. Moreover, the current level is fairly below the highs for this stock, suggesting that the stock is undervalued compared to its historical levels.
Further, the stock’s PE also compares favorably with the Zacks classified Real Estate - Development industry’s trailing twelve months PE ratio, which stands at 20.61. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that LGI Homes has a forward PE ratio (price relative to this year’s earnings) of just 7.67, so it is fair to say that a slightly more value-oriented path may be ahead for LGI Homes stock in the near term too.
P/S Ratio
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, LGI Homes has a P/S ratio of about 0.84. This is a bit lower than the S&P 500 average, which comes in at 3.27 right now. Also, as we can see in the chart below, this is below the highs for this stock in particular over the past few years.
If anything, LGIH is in the lower end of its range in the time period from a P/S metric, suggesting some level of undervalued trading—at least compared to historical norms.
Broad Value Outlook
In aggregate, LGI Homes currently has a Zacks Value Style Score of ‘B’, putting it into the top 40% of all stocks we cover from this look. This makes LGI Homes a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for LGI Homes is just 0.70, a level that is far lower than the industry average of 2.57. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Clearly, LGIH is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though LGI Homes might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘C’ and a Momentum score of ‘F’. This gives LGIH a Zacks VGM score—or its overarching fundamental grade—of ‘C’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been encouraging. The current quarter has seen one estimate go higher in the past sixty days compared to none lower, while the full year estimate has seen one upward revision and none downward in the same time period.
This has had a positive impact on the consensus estimate though as the current quarter consensus estimate has risen by 3.3% in the past two months, while the full year estimate has inched upward by 0.9%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Despite this bullish trend, the stock has just a Zacks Rank #3 (Hold), which indicates expectations of in-line performance from the company in the near term.
Bottom Line
LGI Homes is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (among the Bottom 40%) and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past two years, the Zacks Real Estate - Development industry has clearly underperformed the broader market, as you can see below:
So, value investors might want to wait for the broader factors to turn around in this name first, but once that happens, this stock could be a compelling pick.
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Is LGI Homes a Great Stock for Value Investors?
Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put LGI Homes, Inc. (LGIH - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, LGI Homes has a trailing twelve months PE ratio of 9.23, as you can see in the chart below:
This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 19.96. Moreover, the current level is fairly below the highs for this stock, suggesting that the stock is undervalued compared to its historical levels.
Further, the stock’s PE also compares favorably with the Zacks classified Real Estate - Development industry’s trailing twelve months PE ratio, which stands at 20.61. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that LGI Homes has a forward PE ratio (price relative to this year’s earnings) of just 7.67, so it is fair to say that a slightly more value-oriented path may be ahead for LGI Homes stock in the near term too.
P/S Ratio
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, LGI Homes has a P/S ratio of about 0.84. This is a bit lower than the S&P 500 average, which comes in at 3.27 right now. Also, as we can see in the chart below, this is below the highs for this stock in particular over the past few years.
If anything, LGIH is in the lower end of its range in the time period from a P/S metric, suggesting some level of undervalued trading—at least compared to historical norms.
Broad Value Outlook
In aggregate, LGI Homes currently has a Zacks Value Style Score of ‘B’, putting it into the top 40% of all stocks we cover from this look. This makes LGI Homes a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for LGI Homes is just 0.70, a level that is far lower than the industry average of 2.57. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Clearly, LGIH is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though LGI Homes might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘C’ and a Momentum score of ‘F’. This gives LGIH a Zacks VGM score—or its overarching fundamental grade—of ‘C’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been encouraging. The current quarter has seen one estimate go higher in the past sixty days compared to none lower, while the full year estimate has seen one upward revision and none downward in the same time period.
This has had a positive impact on the consensus estimate though as the current quarter consensus estimate has risen by 3.3% in the past two months, while the full year estimate has inched upward by 0.9%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
LGI Homes, Inc. Price and Consensus
LGI Homes, Inc. Price and Consensus | LGI Homes, Inc. Quote
Despite this bullish trend, the stock has just a Zacks Rank #3 (Hold), which indicates expectations of in-line performance from the company in the near term.
Bottom Line
LGI Homes is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (among the Bottom 40%) and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past two years, the Zacks Real Estate - Development industry has clearly underperformed the broader market, as you can see below:
So, value investors might want to wait for the broader factors to turn around in this name first, but once that happens, this stock could be a compelling pick.
Just Released – Driverless Cars: Your Roadmap to Mega-Profits Today
In this latest Special Report, Zacks’ Aggressive Growth Strategist Brian Bolan explores a full-blown technological breakthrough in the making – autonomous cars. He also spotlights 8 stocks with tremendous gain potential to feed off this phenomenon. Click to see the stocks right now >>