Investors interested in REIT and Equity Trust - Residential stocks are likely familiar with Safehold (SAFE) and American Homes 4 Rent (AMH). 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, Safehold is sporting a Zacks Rank of #2 (Buy), while American Homes 4 Rent has a Zacks Rank of #3 (Hold). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that SAFE is likely seeing its earnings outlook improve to a greater extent. But this is only part of the picture for value investors.
Value investors analyze a variety of traditional, tried-and-true metrics to help find companies that they believe are undervalued at their 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.
SAFE currently has a forward P/E ratio of 8.23, while AMH has a forward P/E of 16.03. We also note that SAFE has a PEG ratio of 2.02. 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. AMH currently has a PEG ratio of 2.81.
Another notable valuation metric for SAFE is its P/B ratio of 0.41. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. For comparison, AMH has a P/B of 1.49.
These are just a few of the metrics contributing to SAFE's Value grade of B and AMH's Value grade of C.
SAFE sticks out from AMH in both our Zacks Rank and Style Scores models, so value investors will likely feel that SAFE is the better option right now.
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Safehold Inc. (SAFE): Free Stock Analysis Report American Homes 4 Rent (AMH): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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