Investors interested in stocks from the Real Estate - Operations sector have probably already heard of PennyMac Mortgage (PMT - Free Report) and Invitation Home (INVH - Free Report) . But which of these two stocks presents investors with the better value opportunity right now? Let's take a closer look.
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 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.
Right now, PennyMac Mortgage is sporting a Zacks Rank of #1 (Strong Buy), while Invitation Home has a Zacks Rank of #3 (Hold). Investors should feel comfortable knowing that PMT likely has seen a stronger improvement to its earnings outlook than INVH has recently. However, value investors will care about much more than just this.
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.
PMT currently has a forward P/E ratio of 12.11, while INVH has a forward P/E of 20.02. We also note that PMT has a PEG ratio of 2.42. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. INVH currently has a PEG ratio of 3.40.
Another notable valuation metric for PMT is its P/B ratio of 1.05. 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, INVH has a P/B of 1.55.
These metrics, and several others, help PMT earn a Value grade of A, while INVH has been given a Value grade of F.
PMT has seen stronger estimate revision activity and sports more attractive valuation metrics than INVH, so it seems like value investors will conclude that PMT is the superior option right now.