PulteGroup (NYSE: PHM) and LGI Homes (NASDAQ:LGIH) are both construction companies, but which is the better stock? We will compare the two businesses based on the strength of their risk, valuation, earnings, profitabiliy, dividends, analyst recommendations and institutional ownership.

Profitability

This table compares PulteGroup and LGI Homes’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
PulteGroup 7.77% 12.74% 6.07%
LGI Homes 8.95% 22.09% 9.51%

Insider and Institutional Ownership

87.8% of PulteGroup shares are held by institutional investors. Comparatively, 86.9% of LGI Homes shares are held by institutional investors. 0.7% of PulteGroup shares are held by company insiders. Comparatively, 13.6% of LGI Homes shares are held by company insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock will outperform the market over the long term.

Valuation and Earnings

This table compares PulteGroup and LGI Homes’ top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
PulteGroup $7.86 billion 1.00 $1.05 billion $1.82 13.70
LGI Homes $838.77 million 1.08 $111.56 million $3.35 12.51

PulteGroup has higher revenue and earnings than LGI Homes. LGI Homes is trading at a lower price-to-earnings ratio than PulteGroup, indicating that it is currently the more affordable of the two stocks.

Risk and Volatility

PulteGroup has a beta of 1.15, meaning that its stock price is 15% more volatile than the S&P 500. Comparatively, LGI Homes has a beta of 0.05, meaning that its stock price is 95% less volatile than the S&P 500.

Dividends

PulteGroup pays an annual dividend of $0.36 per share and has a dividend yield of 1.4%. LGI Homes does not pay a dividend. PulteGroup pays out 19.8% of its earnings in the form of a dividend. LGI Homes has raised its dividend for 3 consecutive years.

Analyst Recommendations

This is a summary of current recommendations and price targets for PulteGroup and LGI Homes, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
PulteGroup 1 4 7 0 2.50
LGI Homes 0 3 1 0 2.25

PulteGroup currently has a consensus price target of $23.90, indicating a potential downside of 4.17%. LGI Homes has a consensus price target of $34.00, indicating a potential downside of 18.87%. Given PulteGroup’s stronger consensus rating and higher possible upside, research analysts plainly believe PulteGroup is more favorable than LGI Homes.

Summary

PulteGroup beats LGI Homes on 9 of the 17 factors compared between the two stocks.

PulteGroup Company Profile

PulteGroup, Inc. is a homebuilder in the United States. The Company’s segments include Homebuilding and Financial Services. Its Homebuilding operations are engaged in the acquisition and development of land primarily for residential purposes within the United States and the construction of housing on such land. Its Financial Services operations consist principally of mortgage banking and title operations. The Company conducts its financial services business, through Pulte Mortgage LLC (Pulte Mortgage) and other subsidiaries. Pulte Mortgage arranges financing through the origination of mortgage loans. The Company’s subsidiaries are engaged in the homebuilding business. It offers a product line to meet the needs of homebuyers in its focused markets. Through its brands, which include Centex, Pulte Homes, Del Webb, DiVosta Homes, and John Wieland Homes and Neighborhoods, the Company offers a range of home designs, including single-family detached, townhouses, condominiums and duplexes.

LGI Homes Company Profile

LGI Homes, Inc. is a homebuilder and land developer. The Company is engaged in the design, construction, marketing and sale of new homes in markets in Texas, Arizona, Florida, Georgia, New Mexico, South Carolina, North Carolina, Colorado, Washington and Tennessee. The Company operates through five segments: the Texas division, the Southwest division, the Southeast division, the Florida division and the Northwest division. The Texas division includes homebuilding operations in Houston, Dallas/Fort Worth, San Antonio and Austin locations. The Southwest division includes homebuilding operations in Phoenix, Tucson, Albuquerque, Denver and Colorado Springs locations. The Southeast division includes homebuilding operations in Atlanta, Charlotte and Nashville locations. The Florida division includes homebuilding operations in Tampa, Orlando, Fort Myers and Jacksonville locations. The Northwest division includes homebuilding operations in Seattle location.

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