Toll Brothers Inc (TOL), Trex Company, Inc. (TREX), Meritage Homes Corp (MTH) – Housing Is Recovering, but Are These Housing Stocks Buys?

Trex Company, Inc. (NYSE:TREX) is a cyclical business, doing a large part of its business in the spring and early summer. Even with the recent share price drop, the company is priced like a growth stock, with a trailing P/E ratio of more than 48. I still have faith in the company’s management – this is the team that turned the company around – but until it restarts that growth, Trex Company, Inc. (NYSE:TREX) is no bargain buy.

Great home value, reasonable valuation
Meritage Homes Corp (NYSE:MTH), however, is growing both sales and income at an impressive rate – more than 50% revenue growth, and an astounding 320% earnings-per-share growth for the most recent quarter. And like Toll Brothers Inc (NYSE:TOL), Meritage Homes Corp (NYSE:MTH) has done a solid job of managing its land inventory, carrying what it estimates at 4.7 years worth of land, having added 3,500 new lots over the quarter.

With a trailing P/E of less than 11, and a forward P/E ratio near 15, shares are borderline cheap. That’s especially true when one considers that since bottoming out in 2011, the company has grown revenues more than 80%. Yet even with that growth, revenue and EPS are still less than half what they were at the peak of the market in 2006.

Let’s be clear: Investors shouldn’t aim for performance that equals the peak of an irrational real estate market. However, it’s worth looking back to see how far the housing market – and Meritage Homes Corp (NYSE:MTH) – have come since the bubble burst. By most measures, there’s still plenty of room to grow in a sustainable way.

Closing thoughts
Mortgage rates are still at historic lows, and housing is still relatively affordable, even with recent price increases. The economy keeps eking out growth and adding more jobs. As these trends continue, homebuilders and companies that support the housing market will benefit.

As for the three companies discussed here, Meritage Homes Corp (NYSE:MTH) looks most attractive. Toll Brothers Inc (NYSE:TOL) has a great target market and position, but shares are borderline expensive, even with the recent price drop. Trex Company, Inc. (NYSE:TREX), however, just isn’t giving investors the growth it’s priced for, and with the deck building season in the rearview mirror till next spring, now may not the best time to buy.

The article Housing Is Recovering, but Are These Housing Stocks Buys? originally appeared on Fool.com and is written by Jason Hall.

Jason Hall owns shares of Trex and Meritage Homes. The Motley Fool recommends Meritage Homes and Trex. The Motley Fool owns shares of Trex.

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