Contrasting Meritage Homes (NYSE:MTH) and Sleep Number (NASDAQ:SNBR)

Sleep Number (NASDAQ:SNBR) and Meritage Homes (NYSE:MTH) are both consumer discretionary companies, but which is the better investment? We will contrast the two businesses based on the strength of their profitability, analyst recommendations, earnings, institutional ownership, dividends, valuation and risk.

Institutional and Insider Ownership

85.7% of Sleep Number shares are held by institutional investors. Comparatively, 98.4% of Meritage Homes shares are held by institutional investors. 3.6% of Sleep Number shares are held by insiders. Comparatively, 2.5% of Meritage Homes shares are held 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 & Valuation

This table compares Sleep Number and Meritage Homes”s top-line revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Sleep Number	$1.34 billion	0.00	-$131.96 million	($7.56)	-0.02
Meritage Homes	$5.86 billion	0.71	$453.01 million	$4.78	13.44

Meritage Homes has higher revenue and earnings than Sleep Number. Sleep Number is trading at a lower price-to-earnings ratio than Meritage Homes, indicating that it is currently the more affordable of the two stocks.

Analyst Recommendations

This is a summary of recent recommendations for Sleep Number and Meritage Homes, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Sleep Number	2	2	0	0	1.50
Meritage Homes	2	7	4	0	2.15

Sleep Number currently has a consensus target price of $3.50, suggesting a potential upside of 2,700.00%. Meritage Homes has a consensus target price of $73.56, suggesting a potential upside of 14.53%. Given Sleep Number’s higher probable upside, equities research analysts clearly believe Sleep Number is more favorable than Meritage Homes.

Profitability

This table compares Sleep Number and Meritage Homes’ net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Sleep Number	-12.98%	N/A	-16.48%
Meritage Homes	6.11%	7.13%	4.83%

Volatility & Risk

Sleep Number has a beta of 2.49, indicating that its stock price is 149% more volatile than the S&P 500. Comparatively, Meritage Homes has a beta of 1.33, indicating that its stock price is 33% more volatile than the S&P 500.

Summary

Meritage Homes beats Sleep Number on 11 of the 14 factors compared between the two stocks.

About Sleep Number

Sleep Number Corporation, together with its subsidiaries, offers sleep solutions and services in the United States. The company designs, manufactures, markets, retails, and services beds, pillows, sheets, and other bedding products under the Sleep Number name. It also provides smart adjustable bases under the FlextFit brand, and smart beds under the Climate 360 name. The company sells its products directly to consumers through retail, online, phone, chat, and other. The company was formerly known as Select Comfort Corporation and changed its name to Sleep Number Corporation in November 2017. Sleep Number Corporation was incorporated in 1987 and is headquartered in Minneapolis, Minnesota.

About Meritage Homes

Meritage Homes Corporation, together with its subsidiaries, designs and builds single-family attached and detached homes in the United States. The company operates through two segments, Homebuilding and Financial Services. It acquires and develops land; and constructs, markets, and sells homes for entry-level and first move-up buyers in Arizona, California, Colorado, Utah, Texas, Florida, Georgia, North Carolina, South Carolina, and Tennessee. The company also offers title and escrow, mortgage, insurance, and closing/settlement services to its homebuyers. Meritage Homes Corporation was founded in 1985 and is based in Scottsdale, Arizona.