Investors interested in stocks from the Building Products - Home Builders sector have probably already heard of KB Home (KBH) and NVR (NVR). 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 is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.
Right now, KB Home is sporting a Zacks Rank of #2 (Buy), while NVR has a Zacks Rank of #3 (Hold). Investors should feel comfortable knowing that KBH likely has seen a stronger improvement to its earnings outlook than NVR has recently. However, value investors will care about much more than just this.
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.
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.
KBH currently has a forward P/E ratio of 10.17, while NVR has a forward P/E of 20.12. We also note that KBH has a PEG ratio of 5.35. 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. NVR currently has a PEG ratio of 11.70.
Another notable valuation metric for KBH is its P/B ratio of 1.12. 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, NVR has a P/B of 6.4.
These metrics, and several others, help KBH earn a Value grade of B, while NVR has been given a 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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KB Home (KBH): Free Stock Analysis Report NVR, Inc. (NVR): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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