Investors interested in stocks from the Building Products - Home Builders sector have probably already heard of D.R. Horton (DHI) and Smith Douglas Homes Corp. (SDHC). 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.
D.R. Horton has a Zacks Rank of #2 (Buy), while Smith Douglas Homes Corp. has a Zacks Rank of #3 (Hold) right now. Investors should feel comfortable knowing that DHI likely has seen a stronger improvement to its earnings outlook than SDHC has recently. But this is just one piece of the puzzle for value investors.
Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether a company is undervalued at its 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.
DHI currently has a forward P/E ratio of 13.20, while SDHC has a forward P/E of 17.05. We also note that DHI has a PEG ratio of 3.30. 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. SDHC currently has a PEG ratio of 11.76.
Another notable valuation metric for DHI is its P/B ratio of 1.93. 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, SDHC has a P/B of 2.22.
These are just a few of the metrics contributing to DHI's Value grade of B and SDHC's Value grade of C.
DHI is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that DHI is likely the superior value option right now.
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This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
