M/I Homes' (NYSE:MHO) earnings growth rate lags the 30% CAGR delivered to shareholders

M/I Homes, Inc. (NYSE:MHO) shareholders might be concerned after seeing the share price drop 28% in the last quarter. But that doesn't change the fact that the returns over the last five years have been very strong. We think most investors would be happy with the 277% return, over that period. We think it's more important to dwell on the long term returns than the short term returns. The more important question is whether the stock is too cheap or too expensive today.

Since the long term performance has been good but there's been a recent pullback of 3.8%, let's check if the fundamentals match the share price.

View our latest analysis for M/I Homes

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

Over half a decade, M/I Homes managed to grow its earnings per share at 35% a year. This EPS growth is reasonably close to the 30% average annual increase in the share price. Therefore one could conclude that sentiment towards the shares hasn't morphed very much. Indeed, it would appear the share price is reacting to the EPS.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

We know that M/I Homes has improved its bottom line lately, but is it going to grow revenue? Check if analysts think M/I Homes will grow revenue in the future.

A Different Perspective

While the broader market gained around 15% in the last year, M/I Homes shareholders lost 5.3%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn't be so upset, since they would have made 30%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand M/I Homes better, we need to consider many other factors. For instance, we've identified 2 warning signs for M/I Homes (1 is a bit unpleasant) that you should be aware of.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.