Investors looking for stocks in the Building Products - Home Builders sector might want to consider either Tri Pointe Homes (TPH) or Smith Douglas Homes Corp. (SDHC). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
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, Tri Pointe Homes is sporting a Zacks Rank of #2 (Buy), while Smith Douglas Homes Corp. has a Zacks Rank of #5 (Strong Sell). Investors should feel comfortable knowing that TPH likely has seen a stronger improvement to its earnings outlook than SDHC has recently. But this is just one factor that value investors are interested in.
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.
TPH currently has a forward P/E ratio of 11.35, while SDHC has a forward P/E of 19.85. We also note that TPH has a PEG ratio of 0.87. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. SDHC currently has a PEG ratio of 13.69.
Another notable valuation metric for TPH is its P/B ratio of 0.83. 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 2.18.
These metrics, and several others, help TPH earn a Value grade of A, while SDHC has been given a Value grade of F.
TPH 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 TPH is likely the superior value option right now.
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Tri Pointe Homes Inc. (TPH): Free Stock Analysis Report Smith Douglas Homes Corp. (SDHC): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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