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.
The best way to find great value stocks is to pair a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system. The Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Currently, Meritage Homes has a Zacks Rank of #1 (Strong Buy), while NVR has a Zacks Rank of #2 (Buy). Investors should feel comfortable knowing that MTH likely has seen a stronger improvement to its earnings outlook than NVR has recently. But this is just one factor that value investors are interested in.
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.
The Value category of the Style Scores system identifies undervalued companies by looking at a number of key metrics. These include the long-favored P/E ratio, P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that help us determine a company's fair value.
MTH currently has a forward P/E ratio of 12.39, while NVR has a forward P/E of 17.73. We also note that MTH has a PEG ratio of 1.51. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. NVR currently has a PEG ratio of 1.65.
Another notable valuation metric for MTH is its P/B ratio of 1.39. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. For comparison, NVR has a P/B of 6.32.
Based on these metrics and many more, MTH holds a Value grade of B, while NVR has a Value grade of C.
MTH stands above NVR thanks to its solid earnings outlook, and based on these valuation figures, we also feel that MTH is the superior value option right now.