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 Quick QuoteLGIH - 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 9.48, as you can see in the chart below:



This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 19.97. If we focus on the long-term PE trend, LGI Homes’ current PE level puts it below its midpoint over the past two years, with the number remaining more or less stable over the past few months. Moreover, the current level is fairly below the highs for this stock, suggesting it might be a good entry point.



Further, the stock’s PE also compares favorably with the Zacks classified Real Estate-Development industry’s trailing twelve months PE ratio, which stands at 41.39. At the very least, this indicates that the stock is significantly undervalued right now, compared to its peers.



We should also point out that LGI Homes has a forward PE ratio (price relative to this year’s earnings) of just 8.19, 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 0.86. This is significantly lower than the S&P 500 average, which comes in at 3.10 right now. Also, as we can see in the chart below, this is below the highs for this stock in particular over the past few years.



As we can see, the stock is trading around its median value for the time period from a P/S metric. This does not provide us with a conclusive direction as to the relative valuation of the stock in comparison to its historical trend.

Broad Value Outlook

In aggregate, LGI Homes currently has a Zacks Value Style Score of ‘B’, putting it into the top 40% of all stocks we cover from this look. This makes LGI Homes a solid choice for value investors, and some of its other key metrics make this pretty clear too.

For example, the PEG ratio for LGI Homes is just 0.74, a level that is far lower than the industry average of 1.65. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Clearly, LGIH is a solid choice on the value front from multiple angles.

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 grade of ‘D’ and a Momentum score of ‘A’. This gives LGIH a Zacks VGM score—or its overarching fundamental grade—of ‘B’. (You can read more about the Zacks Style Scores here >>)

Meanwhile, the company’s recent earnings estimates have been mostly trending higher. The current quarter has seen two estimates go higher in the past sixty days compared to none lower, while the full year estimate has seen one upward and one downward revision in the same time period.

Consequently, the current quarter consensus estimate has risen by 4% in the past two months, while the full year estimate has increased 2.4%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
 

Even though LGI Homes has a better estimates trend, the stock has just a Zacks Rank #3 (Hold). That is why we are looking for in-line performance 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. However, with a sluggish industry rank (among the bottom 33%) and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past one year, the Zacks Real Estate-Development industry has clearly underperformed the broader market, as you can see below:



So, value investors might want to wait for broader factors to turn around in this name first, but once that happens, this stock could be a compelling pick.

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