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Is LGI Homes (LGIH) a Great Stock for Value Investors?
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Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put LGI Homes, Inc. (LGIH - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, LGI Homes has a trailing twelve months PE ratio of 9.9, as you can see in the chart below:
Image Source: Zacks Investment Research
This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 25.1. If we focus on the long-term PE trend, LGI Homes’ current PE level puts it slightly below its midpoint over the past five years.
Image Source: Zacks Investment Research
Further, the stock’s PE also compares favorably with the Finance sector’s trailing twelve months PE ratio, which stands at 16.3. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
Image Source: Zacks Investment Research
We should also point out that LGI Homes has a forward PE ratio (price relative to this year’s earnings) of just 8.9, so it is fair to say that a slightly more value-oriented path may be ahead for LGI Homes stock in the near term too.
P/S Ratio
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, LGI Homes has a P/S ratio of about 1.4. This is noticeably lower than the S&P 500’s average of 5.1. Also, as we can see in the chart below, this is slightly below the highs for this stock in particular over the past few years. Image Source: Zacks Investment Research
If anything, LGIH is above the median of the time period from a P/S metric, which suggests that the company’s stock price has already appreciated to some degree, relative to its sales.
Broad Value Outlook
In aggregate, LGI Homes currently has a Value Score of A, putting it into the top 20% of all stocks we cover from this look. This makes LGI Homes a solid choice for value investors.
What About the Stock Overall?
Though LGI Homes might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth Score of B and a Momentum Score of A. This gives LGIH a Zacks VGM score—or its overarching fundamental grade—of A. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been encouraging. The current quarter and the full year have seen three estimates respectively go higher in the past sixty days.
This has had a favorable impact on the consensus estimate as the current quarter consensus estimate and full year estimate have risen by 21.7% and 18.1%, respectively, in the past two months. You can see the consensus estimate trend and recent price action for the stock in the chart below:
This favorable trend is why the stock has a Zacks Rank #2 (Buy) and why we are looking for outperformance from the company in the near term.
Bottom Line
LGI Homes is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Its Zacks Rank also indicates robust growth potential in the near future. Also, the company’s prospects seem encouraging due to favorable broader factors, as it has a strong industry rank (top 21%). In fact, over the past year, the industry has clearly outperformed the broader market, as you can see below:
Image Source: Zacks Investment Research
So, it might pay for value investors to delve deeper into the company’s prospects, as fundamentals indicate that this stock could be a compelling pick.
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Is LGI Homes (LGIH) a Great Stock for Value Investors?
Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put LGI Homes, Inc. (LGIH - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, LGI Homes has a trailing twelve months PE ratio of 9.9, as you can see in the chart below:
Image Source: Zacks Investment Research
This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 25.1. If we focus on the long-term PE trend, LGI Homes’ current PE level puts it slightly below its midpoint over the past five years.
Image Source: Zacks Investment Research
Further, the stock’s PE also compares favorably with the Finance sector’s trailing twelve months PE ratio, which stands at 16.3. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
Image Source: Zacks Investment Research
We should also point out that LGI Homes has a forward PE ratio (price relative to this year’s earnings) of just 8.9, so it is fair to say that a slightly more value-oriented path may be ahead for LGI Homes stock in the near term too.
P/S Ratio
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, LGI Homes has a P/S ratio of about 1.4. This is noticeably lower than the S&P 500’s average of 5.1. Also, as we can see in the chart below, this is slightly below the highs for this stock in particular over the past few years.
Image Source: Zacks Investment Research
If anything, LGIH is above the median of the time period from a P/S metric, which suggests that the company’s stock price has already appreciated to some degree, relative to its sales.
Broad Value Outlook
In aggregate, LGI Homes currently has a Value Score of A, putting it into the top 20% of all stocks we cover from this look. This makes LGI Homes a solid choice for value investors.
What About the Stock Overall?
Though LGI Homes might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth Score of B and a Momentum Score of A. This gives LGIH a Zacks VGM score—or its overarching fundamental grade—of A. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been encouraging. The current quarter and the full year have seen three estimates respectively go higher in the past sixty days.
This has had a favorable impact on the consensus estimate as the current quarter consensus estimate and full year estimate have risen by 21.7% and 18.1%, respectively, in the past two months. You can see the consensus estimate trend and recent price action for the stock in the chart below:
LGI Homes, Inc. Price and Consensus
LGI Homes, Inc. price-consensus-chart | LGI Homes, Inc. Quote
This favorable trend is why the stock has a Zacks Rank #2 (Buy) and why we are looking for outperformance from the company in the near term.
Bottom Line
LGI Homes is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Its Zacks Rank also indicates robust growth potential in the near future. Also, the company’s prospects seem encouraging due to favorable broader factors, as it has a strong industry rank (top 21%). In fact, over the past year, the industry has clearly outperformed the broader market, as you can see below:
Image Source: Zacks Investment Research
So, it might pay for value investors to delve deeper into the company’s prospects, as fundamentals indicate that this stock could be a compelling pick.