The housing market may be recovering despite the macroeconomic challenges. M/I Homes' (MHO), a homebuilding company, reported good results for fiscal year 2022 and is up more than 40% so far this year. The stock could be a good buy. Continue reading.
The confidence of US homebuilders of single-family homes continued to improve in April for the fourth month running due to an increase in demand for new homes, which was a result of a shortage of existing houses and falling mortgage interest rates. This suggests that the residential real estate is slowly recovering.
According to our proprietary rating system, M/I Homes, Inc. is the leading stock in the homebuilding industry.
The National Association of Home Builders/Wells Fargo Housing Market Index also increased by one point this month to 45, its highest level since September.
The industry is also enjoying a favorable investor sentiment as evidenced by SPDR Homebuilders ETF (XHB), which has returned 24.5% over the last year, compared with S&P 500’s gains of 8.9% over the same time period.
MHO is a single-family home builder in the US. In fiscal year 2022, its total revenue increased 10.3% from the previous year to $4.13 Billion. The revenue of its homebuilding segment increased by 11% to $4.05 Billion.
Stock closed the last trading day at $65.64 after gaining 62% in the past six-month period. The stock has gained 8% in the last month and 42.1% for the year.
What could MHO's performance be like in the short term?
MHO's total revenues increased 15.7% over the prior-year quarter to $1.22 Billion for the fourth-quarter ended December 31, 2020. The number of houses delivered increased by 2.9% compared to the previous quarter, reaching 2,384. The company's adjusted EBITDA grew 26% over the previous year to $195.76 millions.
The company's adjusted net profit increased by 27.3% over the past year to $144.34 millions, and its adjusted EPS was $5.15. This represents a 34.5% increase.
MHO's non-GAAP forward P/E is 5.90x. This is 57.6% less than the industry average of 13.91x. The 0.73x forward EV/Sales multiple is 36% less than the industry average of 1.13x, and the 0.76x Price/Book multiple is 70.4% less than the 2.57x average.
The stock's P/S forward multiple of 0.53, is 38.2% less than the industry standard of 0.85x. Its EV/EBIT forward multiple of 5.84, is 54.5% less than the average industry multiple of 12.84.
MHO's EBIT margin for the trailing 12 months of 15.75% is 102.1% greater than the industry average of 7.79%. Its net income margin for the trailing 12 months of 11.88% was 168.3% greater than the industry average.
The company's ROCE, ROTC and ROTA for the trailing 12 months are 26.56% and 14.25% respectively, which is higher than the average industry figures of 11.79%, 6.35% and 3.92%.
The POWR ratings reflect solid prospects
MHO is rated A in our POWR Ratings System. This equates to a Strong Purchase. The POWR ratings are calculated by weighing 118 factors to the optimal level.
We also use our proprietary system to evaluate each stock in eight different categories. MHO is rated A for Value due to its lower valuation multiples than the industry.
Momentum is a grade of A because the stock trades above its moving averages for 50 days and 200 days.
MHO ranks first out of 24 stocks within the B-rated Homebuilders sector.
Click here to view the additional POWR ratings for MHO (Stability Quality and Momentum).
MHO's current price is above its 50-day average of $60.10, and the 200-day average of $49.04, both at $49, respectively. This indicates an upward trend. MHO's EBITDA and revenue grew at CAGRs between 18.2% and 48.7% in the last three years.
It might be a good buy right now, given the housing market's rebound, MHO’s strong performance in the past fiscal year, the low valuation multiples and the high profitability.
How does M/I Homes, Inc., (MHO), compare to its peers?
MHO has a POWR rating of A. You can also look at these other stocks in the Homebuilding sector with a B rating (Buy). These include TRI Pointe Group, Inc., Taylor Morrison Home Corporation, and PulteGroup Inc.
Death trap stocks lurk in your portfolio
MHO shares traded at $65.61 a share in the morning of Tuesday, down $0.03 (0.05%). MHO shares have risen 42.07% year-to-date compared to the S&P 500 benchmark index, which has risen 7.91%.
About the Author: Kritika Saarmah
Kritika's passion for writing and interest in risky financial instruments made her an analyst and journalist. She has a bachelor's in commerce, and is pursuing her CFA. She hopes to identify investment opportunities that are not being explored by investors using her fundamental approach.