Investors interested in Building Products - Home Builders stocks are likely familiar with Meritage Homes (MTH - Free Report) and NVR (NVR - Free Report) . But which of these two stocks offers value investors a better bang for their buck right now? We'll need to 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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Meritage Homes and NVR are sporting Zacks Ranks of #2 (Buy) and #3 (Hold), respectively, right now. This means that MTH's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is just one piece of the puzzle for value investors.
Value investors analyze a variety of traditional, tried-and-true metrics to help find companies that they believe are undervalued at their 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.
MTH currently has a forward P/E ratio of 10.88, while NVR has a forward P/E of 17.68. We also note that MTH has a PEG ratio of 1.21. 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 1.62.
Another notable valuation metric for MTH is its P/B ratio of 1.26. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. By comparison, NVR has a P/B of 5.94.
These metrics, and several others, help MTH earn a Value grade of B, while NVR has been given a Value grade of C.
MTH has seen stronger estimate revision activity and sports more attractive valuation metrics than NVR, so it seems like value investors will conclude that MTH is the superior option right now.