Investors looking for stocks in the Building Products - Home Builders sector might want to consider either Meritage Homes (MTH) or NVR (NVR). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
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 favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Meritage Homes and NVR are both sporting a Zacks Rank of # 2 (Buy) right now. 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. But this is only part of the picture 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.
The Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.
MTH currently has a forward P/E ratio of 10.53, while NVR has a forward P/E of 17.49. We also note that MTH has a PEG ratio of 1.18. 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 1.66.
Another notable valuation metric for MTH is its P/B ratio of 1.40. 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 6.27.
Based on these metrics and many more, MTH holds a Value grade of A, while NVR has a Value grade of C.
Both MTH and NVR are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that MTH is the superior value option right now.