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Here's Why M.D.C. Holdings Could be a Great Value 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 M.D.C. Holdings, Inc. MDC 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, M.D.C. Holdings has a trailing twelve months PE ratio of 15.72, 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 20.18. If we focus on the long-term PE trend, M.D.C. Holdings’ current PE level puts it slightly below its midpoint of 16.03 over the past few years. Moreover, the current level stands well below the highs for the stock, indicating that it could be a great entry point.

Further, the stock’s PE also compares favorably with the Zacks classified Construction sector’s trailing twelve months PE ratio, which stands at 19.69. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.

We should also point out that M.D.C. Holdings has a forward PE ratio (price relative to this year’s earnings) of just 13.81, so it is fair to say that a more value-oriented path may be ahead for M.D.C. Holdings 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, M.D.C. Holdings has a P/S ratio of about 0.73. This is way lower than the S&P 500 average, which comes in at 3.13 right now. Also, as we can see in the chart below, this is little below the highs for this stock in particular over the past few years.

Broad Value Outlook

In aggregate, M.D.C. Holdings 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 M.D.C. Holdings a solid choice for value investors.

What About the Stock Overall?

While M.D.C. Holdings 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 Momentum score of ‘A’, each. This gives MDC 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 somewhat encouraging. While the current quarter has not seen any estimate revisions in the past 30 days, the full year estimate has seen one upward and no downward revision over the same time frame.

This has had a slightly positive impact on the consensus estimate, as the full year estimate has inched higher by 0.8% in the last one month, whereas the current quarter consensus estimate remained stable. You can see the consensus estimate trend and recent price action for the stock in the chart below:

M.D.C. Holdings, Inc. Price and Consensus

M.D.C. Holdings, Inc. Price and Consensus | M.D.C. Holdings, Inc. Quote

Given this somewhat bullish trend and long-term EPS growth rate of 12%, the stock boasts a Zacks Rank #2 (Buy), which indicates why we are looking for outperformance from the company in the near term.

Bottom Line

Clearly, M.D.C. Holdings is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Further, this Zacks Rank #2 company enjoys a strong industry rank (Top 14% out of over 250 industries), which signals favorable broader factors for the company. In fact, so far this year, the Zacks categorized Building – Residential/Commercial industry has outperformed the broader market, as you can see below:

So, it might pay for value investors to delve deeper into the company’s prospects, as fundamentals and solid metrics indicate that this stock could be a compelling pick.

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