Investors interested in Building Products - Home Builders stocks are likely familiar with KB Home (KBH) and 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.
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 Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Right now, KB Home is sporting a Zacks Rank of #1 (Strong Buy), while NVR has a Zacks Rank of #3 (Hold). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that KBH has an improving earnings outlook. But this is only part of the picture for value investors.
Value investors are also interested in a number of tried-and-true valuation metrics that help show when a company is undervalued at its 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.
KBH currently has a forward P/E ratio of 10.57, while NVR has a forward P/E of 18.11. We also note that KBH has a PEG ratio of 0.97. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. NVR currently has a PEG ratio of 1.68.
Another notable valuation metric for KBH is its P/B ratio of 1.44. 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, NVR has a P/B of 6.28.
These are just a few of the metrics contributing to KBH's Value grade of B and NVR's Value grade of C.
KBH sticks out from NVR in both our Zacks Rank and Style Scores models, so value investors will likely feel that KBH is the better option right now.
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