Hovnanian Enterprises (NYSE: HOV) and Meritage Corporation (NYSE:MTH) are both small-cap construction companies, but which is the better investment? We will contrast the two businesses based on the strength of their risk, analyst recommendations, profitabiliy, dividends, valuation, institutional ownership and earnings.

Risk & Volatility

Hovnanian Enterprises has a beta of 1.73, indicating that its share price is 73% more volatile than the S&P 500. Comparatively, Meritage Corporation has a beta of 1.48, indicating that its share price is 48% more volatile than the S&P 500.

Analyst Recommendations

This is a summary of recent recommendations and price targets for Hovnanian Enterprises and Meritage Corporation, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Hovnanian Enterprises 1 1 0 0 1.50
Meritage Corporation 2 8 1 0 1.91

Hovnanian Enterprises presently has a consensus target price of $1.55, indicating a potential downside of 35.68%. Meritage Corporation has a consensus target price of $39.39, indicating a potential downside of 5.32%. Given Meritage Corporation’s stronger consensus rating and higher probable upside, analysts clearly believe Meritage Corporation is more favorable than Hovnanian Enterprises.

Insider and Institutional Ownership

30.0% of Hovnanian Enterprises shares are held by institutional investors. Comparatively, 97.7% of Meritage Corporation shares are held by institutional investors. 15.4% of Hovnanian Enterprises shares are held by company insiders. Comparatively, 5.6% of Meritage Corporation shares are held by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock is poised for long-term growth.

Valuation & Earnings

This table compares Hovnanian Enterprises and Meritage Corporation’s gross revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Hovnanian Enterprises $2.66 billion 0.12 $137.91 million $0.09 26.78
Meritage Corporation $3.12 billion 0.54 $238.33 million $3.61 11.52

Meritage Corporation has higher revenue and earnings than Hovnanian Enterprises. Meritage Corporation is trading at a lower price-to-earnings ratio than Hovnanian Enterprises, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares Hovnanian Enterprises and Meritage Corporation’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Hovnanian Enterprises 0.56% -8.20% 0.98%
Meritage Corporation 4.90% 10.94% 5.30%

Summary

Meritage Corporation beats Hovnanian Enterprises on 11 of the 14 factors compared between the two stocks.

Hovnanian Enterprises Company Profile

Hovnanian Enterprises, Inc. is a builder of residential homes. The Company designs, constructs, markets and sells single-family detached homes, attached townhomes and condominiums, urban infill and active lifestyle homes in planned residential developments. The Company has two distinct operations: homebuilding and financial services. Its homebuilding operations consist of six segments: Northeast: New Jersey and Pennsylvania; Mid-Atlantic: Delaware, Maryland, Virginia, Washington, District of Columbia, and West Virginia; Midwest: Illinois and Ohio; Southeast: Florida, Georgia and South Carolina; Southwest: Arizona and Texas, and West: California. Its financial services operations provide mortgage loans and title services to the customers of its homebuilding operations. The Company markets and builds homes for first-time buyers, first-time and second-time move-up buyers, luxury buyers, active lifestyle buyers and empty nesters.

Meritage Corporation Company Profile

Meritage Homes Corporation operates as a holding company. The Company is a designer and builder of single-family homes. The Company operates through two segments: homebuilding and financial services. The homebuilding segment is engaged in the business of acquiring and developing land, constructing homes, marketing and selling those homes, and providing warranty and customer services. It builds homes in the regions of the United States and offers a range of homes that are designed for a range of homebuyers, including first-time, move-up, active adult and luxury. As of December 31, 2016, it had homebuilding operations in three regions: West, Central and East, which were consisted of nine states: Arizona, California, Colorado, Texas, Florida, Georgia, North Carolina, South Carolina and Tennessee. It also operates Carefree Title Agency, Inc. (Carefree Title) company. Carefree Title’s core business includes title insurance and closing/settlement services it offers to its homebuyers.

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