The confidence of US single-family homebuilders continued to improve for the fourth consecutive month in April due to increased demand for new houses which resulted from a shortage of previously owned homes and falling mortgage rates, suggesting the residential real estate market is slowly recovering.

Therefore, I think it might be ideal to add leading homebuilding stock M/I Homes, Inc. (MHO) to your portfolio, which is ranked at the top in the Homebuilding industry in our proprietary rating system.

Additionally, the National Association of Home Builders/Wells Fargo Housing Market Index edged up one point to 45 this month, the highest level since September.

Moreover, the industry enjoys favorable investor sentiment, as evident from SPDR Homebuilders ETF’s (XHB) 24.5% returns over the past year, compared to S&P 500’s 8.9% gains over the same period.

MHO operates as a builder of single-family homes in the US. Its total revenue rose 10.3% year-over-year to $4.13 billion in the fiscal year 2022. Its homebuilding segment’s revenues increased 11% from the prior year to $4.05 billion.

The stock has gained 62% over the past six months, closing the last trading session at $65.64. It has gained 8% over the past month and 42.1% year-to-date.

Here’s what could shape MHO’s performance in the near term:

Robust Financials

MHO’s total revenue increased 15.7% year-over-year to $1.22 billion for the fourth quarter ended December 31, 2022. The number of homes delivered rose 2.9% over the prior-year quarter to 2,384. Its adjusted EBITDA increased 26% year-over-year to $195.76 million.

In addition, the company’s adjusted net income increased 27.3% year-over-year to $144.34 million and adjusted EPS came in at $5.15, representing an increase of 34.5% year-over-year.

Discounted Valuation

In terms of forward non-GAAP P/E, MHO is currently trading at 5.90x, which is 57.6% lower than the 13.91x industry average. Its 0.73x forward EV/Sales is 36% lower than the 1.13x industry average and its forward Price/Book multiple of 0.76 is 70.4% lower than the 2.57 industry average.

The stock’s forward P/S multiple of 0.53 is 38.2% lower than the industry average of 0.85x, while its forward EV/EBIT multiple of 5.84 is 54.5% lower than the industry average of 12.84.

High Profitability

MHO’s trailing-12-month EBIT margin of 15.75% is 102.1% higher than the 7.79% industry average. Its trailing-12-month net income margin of 11.88% is 168.3% higher than the 4.43% industry average.

Furthermore, the company’s trailing-12-month ROCE, ROTC, and ROTA of 26.56%, 14.25%, and 13.21% are higher than the industry averages of 11.79% and 6.35%, and 3.92%, respectively.

POWR Ratings Reflect Solid Prospects

MHO has an overall A rating, equating to a Strong Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. MHO has an A grade for Value, in sync with its lower-than-industry valuation multiples.

The stock is trading above its 50-day and 200-day moving averages, which justifies its A grade for Momentum.

MHO is ranked first among the 24 stocks in the B-rated Homebuilders industry.

Click here to see the additional POWR Ratings for MHO (Stability, Quality, and Momentum)

Bottom Line

MHO is currently trading above its 50-day and 200-day moving averages of $60.10 and $49.04, respectively, indicating an uptrend. Moreover, MHO’s revenue and EBITDA grew at CAGRs of 18.2% and 48.7% over the past three years.

Considering the rebounding housing market, MHO’s robust performance in the last fiscal year, low-valuation multiples, and high profitability, it might be an ideal buy now.

How Does M/I Homes, Inc. (MHO) Stack up Against Its Peers?   

MHO has an overall POWR Rating of A. One could also check out these other stocks within the Homebuilding industry with a B (Buy) rating: TRI Pointe Group, Inc. (TPH), Taylor Morrison Home Corporation (TMHC), and PulteGroup Inc. (PHM).

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MHO shares were trading at $65.61 per share on Tuesday morning, down $0.03 (-0.05%). Year-to-date, MHO has gained 42.07%, versus a 7.91% rise in the benchmark S&P 500 index during the same period.

About the Author: Kritika Sarmah

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities. More...

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