In This Article:
Investors with an interest in Building Products - Home Builders stocks have likely encountered both Persimmon Plc (PSMMY) 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 proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Persimmon Plc and NVR are sporting Zacks Ranks of #2 (Buy) and #4 (Sell), respectively, right now. This means that PSMMY's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. But this is just one piece of the puzzle for value investors.
Value investors also tend to look at a number of traditional, tried-and-true figures to help them find stocks 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.
PSMMY currently has a forward P/E ratio of 12.48, while NVR has a forward P/E of 14.60. We also note that PSMMY has a PEG ratio of 0.80. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. NVR currently has a PEG ratio of 2.43.
Another notable valuation metric for PSMMY is its P/B ratio of 1.16. 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 5.36.
These are just a few of the metrics contributing to PSMMY's Value grade of B and NVR's Value grade of C.
PSMMY stands above NVR thanks to its solid earnings outlook, and based on these valuation figures, we also feel that PSMMY is the superior value option right now.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Persimmon Plc (PSMMY) : Free Stock Analysis Report
NVR, Inc. (NVR) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).