Investors interested in stocks from the Building Products - Home Builders sector have probably already heard of Lennar (LEN) and PulteGroup (PHM). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great grade in the Value category of our Style Scores system. The proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.
Right now, Lennar is sporting a Zacks Rank of #2 (Buy), while PulteGroup has a Zacks Rank of #5 (Strong Sell). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that LEN is likely seeing its earnings outlook improve to a greater extent. But this is only part of the picture for value investors.
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.
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.
LEN currently has a forward P/E ratio of 9.56, while PHM has a forward P/E of 11.55. We also note that LEN has a PEG ratio of 3.09. 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. PHM currently has a PEG ratio of 5.83.
Another notable valuation metric for LEN is its P/B ratio of 1.16. 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, PHM has a P/B of 1.73.
Based on these metrics and many more, LEN holds a Value grade of B, while PHM has a Value grade of C.
LEN sticks out from PHM in both our Zacks Rank and Style Scores models, so value investors will likely feel that LEN is the better option right now.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Lennar Corporation (LEN) : Free Stock Analysis Report
PulteGroup, Inc. (PHM) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research