Lennar Corporation (LEN), The Ryland Group, Inc. (RYL): US Homebuilders, Gaining Momentum?

It seems that Ryland is another homebuilder that is recovering mainly because of the higher housing affordability levels, the low interest rates and increasing home prices due to a general tightening in national supply of housing inventory. All of that means that you should be aware of possible Fed cuts in the quantitative easing scheme as it could seriously affect the housing market.

This could be an excellent time to enter the housing market

Regarding valuation, Lennar Corporation (NYSE:LEN)’s price/earnings to growth ratio is around 0.58 times. This could indicate that, given its high forward price to earnings ratio of 26 times, the stock is undervalued. This happens with other companies in the peer group as well, such as Meritage.

Meritage is trading at a forward price to earnings ratio of 19.5 times with a price/earnings to growth ratio of 0.3 times which also indicates an undervalued stock given its potential growth in earnings per share. The market is bullish about the housing sector recovery, as Meritage’s stock price has already surged more than 77% from June 2012 to present date andis still expecting strong growth prospects.

Finally, The Ryland Group, Inc. (NYSE:RYL) is trading at a forward price to earnings ratio of 13.6 times and a price/earnings to growth ratio of 0.23 times. This also shows that it could be a good time to enter the market with the company as it is undervalued. This is because a low price/earnings to growth ratio is an indicator that investors will pay less for each unit of future earnings growth. Ryland’s stock has surged more than 100% since June 2012, so the start of a bubble in this market should not be discarded.

Vanina Egea has no position in any stocks mentioned. The Motley Fool recommends Meritage Homes. Vanina is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article US Homebuilders: Gaining Momentum? originally appeared on Fool.com and is written by Vanina Egea.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.