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TOL vs. PHM: Which Stock Should Value Investors Buy Now?

Zacks Equity Research

Investors looking for stocks in the Building Products - Home Builders sector might want to consider either Toll Brothers (TOL) or PulteGroup (PHM). 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.

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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.

Toll Brothers and PulteGroup are sporting Zacks Ranks of #2 (Buy) and #4 (Sell), respectively, right now. This means that TOL's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is only part of the picture 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.

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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.

TOL currently has a forward P/E ratio of 7.84, while PHM has a forward P/E of 8.57. We also note that TOL has a PEG ratio of 0.50. 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. PHM currently has a PEG ratio of 1.27.

Another notable valuation metric for TOL is its P/B ratio of 1.15. 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, PHM has a P/B of 1.57.

These metrics, and several others, help TOL earn a Value grade of A, while PHM has been given a Value grade of C.

TOL sticks out from PHM in both our Zacks Rank and Style Scores models, so value investors will likely feel that TOL is the better option right now.


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Toll Brothers Inc. (TOL) : Free Stock Analysis Report
 
PulteGroup, Inc. (PHM) : Free Stock Analysis Report
 
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