William Lyon Homes (NYSE: WLH) and Hovnanian Enterprises (NYSE:HOV) are both small-cap cyclical consumer goods & services companies, but which is the better stock? We will compare the two businesses based on the strength of their risk, dividends, valuation, analyst recommendations, earnings, profitability and institutional ownership.

Profitability

This table compares William Lyon Homes and Hovnanian Enterprises’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
William Lyon Homes 3.61% 9.33% 3.58%
Hovnanian Enterprises -13.55% -1.29% 0.28%

Volatility & Risk

William Lyon Homes has a beta of 2.14, indicating that its stock price is 114% more volatile than the S&P 500. Comparatively, Hovnanian Enterprises has a beta of 2, indicating that its stock price is 100% more volatile than the S&P 500.

Institutional & Insider Ownership

98.2% of William Lyon Homes shares are owned by institutional investors. Comparatively, 32.1% of Hovnanian Enterprises shares are owned by institutional investors. 21.3% of William Lyon Homes shares are owned by insiders. Comparatively, 15.4% of Hovnanian Enterprises shares are owned by 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 and Earnings

This table compares William Lyon Homes and Hovnanian Enterprises’ top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
William Lyon Homes $1.41 billion 0.72 $59.69 million $1.53 20.92
Hovnanian Enterprises $2.45 billion 0.17 -$332.19 million ($2.25) -1.28

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

Analyst Recommendations

This is a summary of recent ratings for William Lyon Homes and Hovnanian Enterprises, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
William Lyon Homes 0 2 1 0 2.33
Hovnanian Enterprises 2 0 0 0 1.00

William Lyon Homes currently has a consensus target price of $33.00, suggesting a potential upside of 3.09%. Hovnanian Enterprises has a consensus target price of $1.53, suggesting a potential downside of 47.05%. Given William Lyon Homes’ stronger consensus rating and higher probable upside, research analysts clearly believe William Lyon Homes is more favorable than Hovnanian Enterprises.

Summary

William Lyon Homes beats Hovnanian Enterprises on 13 of the 14 factors compared between the two stocks.

William Lyon Homes Company Profile

William Lyon Homes is primarily engaged in the design, construction and sale of single family detached and attached homes in California, Arizona and Nevada. The Company conducts its homebuilding operations through four reportable operating segments: Southern California, Northern California, Arizona and Nevada. For the three months ended March 31, 2012, 37% of home closings were derived from the Company’s California operations. The Company designs, constructs and sells a range of homes designed to meet the needs of each of its markets, although it primarily focuses sales to the entry-level and first time move-up home buyer markets. During the year ended December 31, 2011, the Company marketed its homes through 19 sales locations. In October 2013, the Company purchase 221 homesites at the master-planned Southshore community in Aurora, Colorado.

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.

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