The stock of M/I Homes (NYSE:MHO, 30-year Financials) is believed to be fairly valued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $59.05 per share and the market cap of $1.7 billion, M/I Homes stock appears to be fairly valued. GF Value for M/I Homes is shown in the chart below.
Because M/I Homes is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 17.8% over the past five years.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company’s financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company’s financial strength. M/I Homes has a cash-to-debt ratio of 0.34, which ranks worse than 66% of the companies in Homebuilding & Construction industry. Based on this, GuruFocus ranks M/I Homes’s financial strength as 6 out of 10, suggesting fair balance sheet. This is the debt and cash of M/I Homes over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. M/I Homes has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $3.3 billion and earnings of $9.96 a share. Its operating margin is 11.92%, which ranks better than 68% of the companies in Homebuilding & Construction industry. Overall, the profitability of M/I Homes is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of M/I Homes over the past years:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus’ research has found that growth is closely correlated with the long-term performance of a company’s stock. If a company’s business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. M/I Homes’s 3-year average revenue growth rate is better than 83% of the companies in Homebuilding & Construction industry. M/I Homes’s 3-year average EBITDA growth rate is 33%, which ranks better than 89% of the companies in Homebuilding & Construction industry.
One can also evaluate a company’s profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, M/I Homes’s ROIC is 14.40 while its WACC came in at 10.29. The historical ROIC vs WACC comparison of M/I Homes is shown below:
Overall, The stock of M/I Homes (NYSE:MHO, 30-year Financials) shows every sign of being fairly valued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 89% of the companies in Homebuilding & Construction industry. To learn more about M/I Homes stock, you can check out its 30-year Financials here.
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