With a daily loss of -4.2%, a 3-month gain of 13.69%, and an Earnings Per Share (EPS) of 17.08, M/I Homes Inc (MHO, Financial) presents an intriguing case for investors. The key question is whether the stock is modestly overvalued. This article provides a comprehensive valuation analysis of M/I Homes (MHO). Read on to gain insightful perspectives on the company's financial performance and market valuation.
Company Overview
M/I Homes Inc is an American construction company that focuses on residential construction. It operates two distinct segments: homebuilding and financial services. The homebuilding operations are spread into the Midwest, Mid-Atlantic, and Southern regions. The financial services operations support homebuilding operations by providing mortgage loans and title services to the customers of homebuilding operations. The company builds homes and communities that target entry-level, move-up, and luxury homebuyers.
Currently, M/I Homes (MHO, Financial) trades at $89.56 per share, which is significantly higher than its estimated GF Value of $68.82. This discrepancy suggests that the stock might be modestly overvalued.
Understanding the GF Value
The GF Value is a proprietary measure that estimates the intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on the company's past performance and growth, and future estimates of business performance. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at.
According to our valuation method, M/I Homes (MHO, Financial) appears to be modestly overvalued. The stock's fair value is estimated based on historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. Conversely, if the share price is significantly below the GF Value calculation, the stock may be undervalued and have higher future returns.
Given that M/I Homes is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth.
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Financial Strength
Assessing the financial strength of a company is crucial before investing in its stock. Companies with poor financial strength pose a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage can provide insights into a company's financial strength. M/I Homes has a cash-to-debt ratio of 0.71, which is better than 55.66% of 106 companies in the Homebuilding & Construction industry. The overall financial strength of M/I Homes is 8 out of 10, indicating strong financial health.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. M/I Homes has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $4.20 billion and Earnings Per Share (EPS) of $17.08. Its operating margin is 14.97%, which ranks better than 70.64% of 109 companies in the Homebuilding & Construction industry. Overall, the profitability of M/I Homes is ranked 9 out of 10, indicating strong profitability.
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of M/I Homes is18.2%, which ranks better than 76.47% of 102 companies in the Homebuilding & Construction industry. The 3-year average EBITDA growth is 48.1%, which ranks better than 82.98% of 94 companies in the Homebuilding & Construction industry.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) can provide insights into its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, M/I Homes's return on invested capital is 16.11, and its cost of capital is 9.53.
Conclusion
In conclusion, the stock of M/I Homes (MHO, Financial) appears to be modestly overvalued. The company's financial condition is strong, and its profitability is robust. Its growth ranks better than 82.98% of 94 companies in the Homebuilding & Construction industry. To learn more about M/I Homes stock, you can check out its 30-Year Financials here.
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