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Does Meritage Homes Corporation's (NYSE:MTH) Past Performance Indicate A Stronger Future?

Simply Wall St

In this commentary, I will examine Meritage Homes Corporation's (NYSE:MTH) latest earnings update (31 December 2019) and compare these figures against its performance over the past couple of years, as well as how the rest of the consumer durables industry performed. As an investor, I find it beneficial to assess MTH’s trend over the short-to-medium term in order to gauge whether or not the company is able to meet its goals, and ultimately sustainably grow over time.

View our latest analysis for Meritage Homes

How Well Did MTH Perform?

MTH's trailing twelve-month earnings (from 31 December 2019) of US$250m has increased by 9.8% compared to the previous year.

However, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 13%, indicating the rate at which MTH is growing has slowed down. What could be happening here? Well, let's look at what's going on with margins and if the rest of the industry is experiencing the hit as well.

NYSE:MTH Income Statement April 7th 2020

In terms of returns from investment, Meritage Homes has fallen short of achieving a 20% return on equity (ROE), recording 13% instead. However, its return on assets (ROA) of 7.6% exceeds the US Consumer Durables industry of 7.4%, indicating Meritage Homes has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Meritage Homes’s debt level, has increased over the past 3 years from 8.5% to 10%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 84% to 52% over the past 5 years.

What does this mean?

Though Meritage Homes's past data is helpful, it is only one aspect of my investment thesis. While Meritage Homes has a good historical track record with positive growth and profitability, there's no certainty that this will extrapolate into the future. You should continue to research Meritage Homes to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for MTH’s future growth? Take a look at our free research report of analyst consensus for MTH’s outlook.
  2. Financial Health: Are MTH’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

NB: Figures in this article are calculated using data from the trailing twelve months from 31 December 2019. This may not be consistent with full year annual report figures.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

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