Investors interested in Building Products - Home Builders stocks are likely familiar with Meritage Homes (MTH) and D.R. Horton (DHI). 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 favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Right now, both Meritage Homes and D.R. Horton are sporting a Zacks Rank of # 1 (Strong Buy). This means that both companies have witnessed positive earnings estimate revisions, so investors should feel comfortable knowing that both of these stocks have an improving earnings outlook. But this is just one piece of the puzzle 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.
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 11.59, while DHI has a forward P/E of 12.91. We also note that MTH has a PEG ratio of 0.63. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. DHI currently has a PEG ratio of 0.94.
Another notable valuation metric for MTH is its P/B ratio of 1.79. 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, DHI has a P/B of 2.12.
These metrics, and several others, help MTH earn a Value grade of A, while DHI has been given a Value grade of C.
Both MTH and DHI are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that MTH is the superior value option right now.
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Meritage Homes Corporation (MTH) : Free Stock Analysis Report
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