Investors with an interest in Building Products - Home Builders stocks have likely encountered both PulteGroup (PHM - 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.
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.
Right now, both PulteGroup and NVR are sporting a Zacks Rank of # 1 (Strong Buy). Investors should feel comfortable knowing that both of these stocks have an improving earnings outlook since the Zacks Rank favors companies that have witnessed positive analyst estimate revisions. However, value investors will care about much more than just this.
Value investors are also interested in a number of tried-and-true valuation metrics that help show when a company is undervalued at its current share price levels.
Our Value category grades stocks based on a number of key metrics, including the tried-and-true P/E ratio, the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.
PHM currently has a forward P/E ratio of 9.33, while NVR has a forward P/E of 16.47. We also note that PHM has a PEG ratio of 1.38. 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 1.54.
Another notable valuation metric for PHM is its P/B ratio of 1.78. 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 6.22.
These metrics, and several others, help PHM earn a Value grade of A, while NVR has been given a Value grade of C.
Both PHM and NVR are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that PHM is the superior value option right now.