Should value investors buy LGI Homes (LGIH) shares?

Here at Zacks, we focus on our proven ranking system, which places an emphasis on earnings estimates and estimate revisions, to find winning stocks. But we also understand that investors develop their own strategies, so we are constantly monitoring the latest trends in value, growth and momentum to find strong companies for our readers.

Looking at the history of these trends, arguably none is more popular than value investing. This strategy simply aims to identify companies that are undervalued by the broader market. Value investors use a variety of methods, including tried-and-tested valuation metrics, to find these stocks.

In addition to the Zacks Rank, investors can also use our innovative Style Scores system to find stocks with specific traits. For example, value investors should focus on the Value category. Stocks with high Zacks Ranks and “A” grades for Value are among the highest-quality value stocks on the market today.

LGI Homes (LGIH) is a stock that is currently being watched by many investors. LGIH currently has a Zacks Rank of #2 (Buy) as well as a Value rating of A.

Investors should also note that LGIH has a PEG ratio of 0.87. This figure is similar to the commonly used P/E ratio, with the PEG ratio also taking into account a company’s expected earnings growth rate. LGIH’s industry currently has an average PEG of 2.29. LGIH’s PEG has been as high as 0.92 and as high as 0.71 over the past year, with the median being 0.86.

Value investors also value the P/S ratio, which is calculated by dividing the stock price by the company’s revenue. This is a popular metric because revenue is harder to manipulate on an income statement and is therefore often considered a better indicator of performance. LGIH has a P/S ratio of 0.68. In comparison, the average P/S ratio for its industry is 1.1.

Finally, our model also highlights that LGIH has a P/CF ratio of 6.38. This metric focuses on a company’s operating cash flow and is often used to find stocks that are undervalued due to their strong cash outlook. LGIH’s current P/CF looks attractive when compared to the industry’s average P/CF of 18.85. Over the past 52 weeks, LGIH’s P/CF has ranged from 14.82 to 5.29, with a median of 12.07.

These are just some of the numbers that have been factored into LGI Homes’ strong valuation. Nevertheless, they show that the stock is likely undervalued right now. When you add this together with the strong earnings outlook, it’s clear that LGIH is an impressive value stock right now.

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