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M/I Homes, Inc.'s (NYSE:MHO) Price Is Right But Growth Is Lacking

Simply Wall St
·3 min read

When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 18x, you may consider M/I Homes, Inc. (NYSE:MHO) as a highly attractive investment with its 7.4x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

M/I Homes certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

View our latest analysis for M/I Homes

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Keen to find out how analysts think M/I Homes' future stacks up against the industry? In that case, our free report is a great place to start.

What Are Growth Metrics Telling Us About The Low P/E?

In order to justify its P/E ratio, M/I Homes would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered an exceptional 49% gain to the company's bottom line. Pleasingly, EPS has also lifted 140% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 6.2% per year during the coming three years according to the two analysts following the company. With the market predicted to deliver 11% growth each year, the company is positioned for a weaker earnings result.

In light of this, it's understandable that M/I Homes' P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From M/I Homes' P/E?

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that M/I Homes maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

It is also worth noting that we have found 4 warning signs for M/I Homes (1 doesn't sit too well with us!) that you need to take into consideration.

Of course, you might also be able to find a better stock than M/I Homes. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

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. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.