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

Profitability

This table compares M.D.C. Holdings and Meritage Corporation’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
M.D.C. Holdings 4.76% 9.34% 4.91%
Meritage Corporation 4.94% 10.89% 5.29%

Analyst Recommendations

This is a summary of recent recommendations for M.D.C. Holdings and Meritage Corporation, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
M.D.C. Holdings 3 3 0 0 1.50
Meritage Corporation 2 6 1 0 1.89

M.D.C. Holdings currently has a consensus price target of $29.00, indicating a potential downside of 15.92%. Meritage Corporation has a consensus price target of $40.29, indicating a potential downside of 7.39%. Given Meritage Corporation’s stronger consensus rating and higher possible upside, analysts clearly believe Meritage Corporation is more favorable than M.D.C. Holdings.

Risk and Volatility

M.D.C. Holdings has a beta of 1.36, indicating that its share price is 36% more volatile than the S&P 500. Comparatively, Meritage Corporation has a beta of 1.47, indicating that its share price is 47% more volatile than the S&P 500.

Institutional and Insider Ownership

81.2% of M.D.C. Holdings shares are owned by institutional investors. Comparatively, 97.6% of Meritage Corporation shares are owned by institutional investors. 25.3% of M.D.C. Holdings shares are owned by insiders. Comparatively, 5.6% of Meritage Corporation shares are owned by insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a company will outperform the market over the long term.

Earnings and Valuation

This table compares M.D.C. Holdings and Meritage Corporation’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
M.D.C. Holdings $2.50 billion 0.71 $189.74 million $2.36 14.59
Meritage Corporation $3.12 billion 0.56 $238.33 million $3.64 11.95

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

Summary

Meritage Corporation beats M.D.C. Holdings on 11 of the 14 factors compared between the two stocks.

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.

About Meritage Corporation

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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