Stock Analysis

M/I Homes (NYSE:MHO) Is Doing The Right Things To Multiply Its Share Price

  •  Updated
NYSE:MHO
Source: Shutterstock

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in M/I Homes' (NYSE:MHO) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on M/I Homes is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.19 = US$567m ÷ (US$3.5b - US$566m) (Based on the trailing twelve months to June 2022).

Therefore, M/I Homes has an ROCE of 19%. That's a relatively normal return on capital, and it's around the 17% generated by the Consumer Durables industry.

Check out our latest analysis for M/I Homes

roce
NYSE:MHO Return on Capital Employed September 18th 2022

In the above chart we have measured M/I Homes' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

Investors would be pleased with what's happening at M/I Homes. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 19%. Basically the business is earning more per dollar of capital invested and in addition to that, 120% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

Our Take On M/I Homes' ROCE

To sum it up, M/I Homes has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a solid 55% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing, we've spotted 1 warning sign facing M/I Homes that you might find interesting.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

What are the risks and opportunities for M/I Homes?

M/I Homes, Inc., together with its subsidiaries, operates as a builder of single-family homes in Ohio, Indiana, Illinois, Minnesota, Michigan, Florida, Texas, North Carolina, and Tennessee.

View Full Analysis

Rewards

  • Price-To-Earnings ratio (2.6x) is below the US market (14.6x)

  • Earnings grew by 30.3% over the past year

Risks

  • Earnings are forecast to decline by an average of 16.5% per year for the next 3 years

  • Debt is not well covered by operating cash flow

View all Risks and Rewards

Share Price

Market Cap

1Y Return

View Company Report

About NYSE:MHO

M/I Homes

M/I Homes, Inc., together with its subsidiaries, operates as a builder of single-family homes in Ohio, Indiana, Illinois, Minnesota, Michigan, Florida, Texas, North Carolina, and Tennessee.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation3
Future Growth0
Past Performance5
Financial Health4
Dividends0

Read more about these checks in the individual report sections or in our analysis model.

Solid track record with adequate balance sheet.