Investors looking for stocks in the Building Products - Home Builders sector might want to consider either Meritage Homes (MTH - Free Report) or NVR (NVR - Free Report) . But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.
Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. The Zacks Rank is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.
Meritage Homes has a Zacks Rank of #2 (Buy), while NVR has a Zacks Rank of #3 (Hold) right now. This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that MTH is likely seeing its earnings outlook improve to a greater extent. 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 8.29, while NVR has a forward P/E of 15.84. 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. NVR currently has a PEG ratio of 1.
Another notable valuation metric for MTH is its P/B ratio of 1.15. 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 7.67.
These are just a few of the metrics contributing to MTH's Value grade of B and NVR's Value grade of C.
MTH is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that MTH is likely the superior value option right now.