Should Value Investors Consider Taylor Morrison (TMHC) Stock?

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 Taylor Morrison Home Corporation TMHC 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, Taylor Morrison has a trailing twelve months PE ratio of 11.9, 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 20.8. If we focus on the long-term PE trend, Taylor Morrison’s current PE level puts it above its midpoint over the past three year.

Further, the stock’s PE also compares favorably with its industry’s trailing twelve months PE ratio, which stands at about 16. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.

We should also point out that Taylor Morrison has a forward PE ratio (price relative to this year’s earnings) of 11.8, which is roughly in line with the current level. Hence the forward earnings estimates are already incorporated in the company’s current share price.

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, Taylor Morrison has a P/S ratio of 0.7. This is a considerably lower than the S&P 500 average, which comes in at 3.3x right now. Also, as we can see in the chart below, this is well below the highs for this stock in particular over the past few years.

Broad Value Outlook

In aggregate, Taylor Morrison currently has a Zacks Value Style Score of A, putting it into the top 20% of all stocks we cover from this look. This makes Taylor Morrison a solid choice for value investors, and some of its other key metrics make this pretty clear too.

For example, the PEG ratio for Taylor Morrison is 0.9, a level that is lower than the industry average of 1.1. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Clearly, TMHC is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though Taylor Morrison 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 A and a Momentum score of D. This gives TMHC 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 mixed at best. The current year has seen three estimates go higher in the past sixty days compared to two lower, while the next year estimate has seen two up and two down in the same time period.

As a result, the current year consensus estimate has decreased by 1% in the past two months, while the next year estimate has inched higher by 0.4%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Taylor Morrison Home Corporation Price and Consensus

Taylor Morrison Home Corporation Price and Consensus | Taylor Morrison Home Corporation Quote

This somewhat mixed trend is why the stock has just a Zacks Rank #3 (Hold) and why we are looking for in-line performance from the company in the near term. This mixed trend indicates that while the stock’s growth story is intact over the medium term, analysts have some apprehensions about the stock in the immediate future.

Bottom Line

Taylor Morrison is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Moreover, a strong industry rank (Top 23% out of more than 250 industries) further supports the growth potential of the stock. Also, over the past six months, the industry to which it belongs has clearly outperformed the broader market, as you can see below:

However, with a Zacks Rank #3, it is hard to get too excited about this company overall. Thus, we can say that while investors may expect slight short-term pain, Taylor Morrison remains a formidable value proposition, with strong supporting growth prospects.

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