Hovnanian Enterprises (NYSE: HOV) and M.D.C. Holdings (NYSE:MDC) are both small-cap construction companies, but which is the superior business? We will contrast the two businesses based on the strength of their institutional ownership, earnings, risk, profitabiliy, dividends, valuation and analyst recommendations.

Insider & Institutional Ownership

30.0% of Hovnanian Enterprises shares are owned by institutional investors. Comparatively, 81.1% of M.D.C. Holdings shares are owned by institutional investors. 15.4% of Hovnanian Enterprises shares are owned by insiders. Comparatively, 25.3% of M.D.C. Holdings shares are owned by insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company will outperform the market over the long term.

Analyst Ratings

This is a summary of current ratings and recommmendations for Hovnanian Enterprises and M.D.C. Holdings, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Hovnanian Enterprises 1 1 0 0 1.50
M.D.C. Holdings 3 3 0 0 1.50

Hovnanian Enterprises presently has a consensus price target of $1.55, indicating a potential downside of 34.87%. M.D.C. Holdings has a consensus price target of $27.80, indicating a potential downside of 21.36%. Given M.D.C. Holdings’ higher possible upside, analysts clearly believe M.D.C. Holdings is more favorable than Hovnanian Enterprises.

Earnings & Valuation

This table compares Hovnanian Enterprises and M.D.C. Holdings’ gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Hovnanian Enterprises $2.66 billion 0.13 $137.91 million $0.09 26.44
M.D.C. Holdings $2.50 billion 0.73 $189.74 million $2.25 15.72

M.D.C. Holdings has higher revenue, but lower earnings than Hovnanian Enterprises. M.D.C. Holdings 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 M.D.C. Holdings’ 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%
M.D.C. Holdings 4.63% 8.88% 4.65%

Volatility and Risk

Hovnanian Enterprises has a beta of 1.73, indicating that its share price is 73% more volatile than the S&P 500. Comparatively, M.D.C. Holdings has a beta of 1.37, indicating that its share price is 37% more volatile than the S&P 500.

Summary

M.D.C. Holdings beats Hovnanian Enterprises on 9 of the 12 factors compared between the two stocks.

About Hovnanian Enterprises

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.

About M.D.C. Holdings

M.D.C. Holdings, Inc. is engaged in two primary operations, including homebuilding and financial services. The Company’s segments include West, including segments located in Arizona, California, Nevada and Washington; Mountain, including segments located in Colorado and Utah; East, including segments located in Virginia, Florida and Maryland, which includes Pennsylvania and New Jersey; mortgage operations, including HomeAmerican Mortgage Corporation, and Other, which includes Allegiant Insurance Company, Inc., StarAmerican Insurance Ltd., American Home Insurance Agency, Inc. and American Home Title and Escrow Company. The homebuilding operations consist of subsidiary companies that purchases finished lots or develop lots necessary for the construction and sale of single-family detached homes to first-time and first-time move-up homebuyers under the name Richmond American Homes. It also includes land acquisition and development, home construction, and sales and marketing.

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