Why M/I Homes, Inc. (NYSE:MHO) Could Be Worth Watching

M/I Homes, Inc. (NYSE:MHO), is not the largest company out there, but it saw a significant share price rise of over 20% in the past couple of months on the NYSE. Less-covered, small caps tend to present more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Let’s take a look at M/I Homes’s outlook and value based on the most recent financial data to see if the opportunity still exists.

Check out our latest analysis for M/I Homes

What Is M/I Homes Worth?

The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that M/I Homes’s ratio of 3.86x is trading slightly below its industry peers’ ratio of 7.14x, which means if you buy M/I Homes today, you’d be paying a decent price for it. And if you believe M/I Homes should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. So, is there another chance to buy low in the future? Given that M/I Homes’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

What kind of growth will M/I Homes generate?

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. Though in the case of M/I Homes, it is expected to deliver a highly negative earnings growth in the upcoming, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What This Means For You

Are you a shareholder? MHO seems priced close to industry peers right now, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on MHO, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on MHO for a while, now may not be the most optimal time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. In addition to this, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help crystallize your views on MHO should the price fluctuate below the industry PE ratio.

If you want to dive deeper into M/I Homes, you'd also look into what risks it is currently facing. Case in point: We've spotted 2 warning signs for M/I Homes you should be mindful of and 1 of these is potentially serious.

If you are no longer interested in M/I Homes, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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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.