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How M/I Homes, Inc. (NYSE:MHO) Can Impact Your Portfolio Volatility

Simply Wall St

Anyone researching M/I Homes, Inc. (NYSE:MHO) might want to consider the historical volatility of the share price. Modern finance theory considers volatility to be a measure of risk, and there are two main types of price volatility. The first category is company specific volatility. This can be dealt with by limiting your exposure to any particular stock. The second sort is caused by the natural volatility of markets, overall. For example, certain macroeconomic events will impact (virtually) all stocks on the market.

Some stocks are more sensitive to general market forces than others. Beta is a widely used metric to measure a stock's exposure to market risk (volatility). Before we go on, it's worth noting that Warren Buffett pointed out in his 2014 letter to shareholders that 'volatility is far from synonymous with risk.' Having said that, beta can still be rather useful. The first thing to understand about beta is that the beta of the overall market is one. Any stock with a beta of greater than one is considered more volatile than the market, while those with a beta below one are either less volatile or poorly correlated with the market.

View our latest analysis for M/I Homes

What MHO's beta value tells investors

Using history as a guide, we might surmise that the share price is likely to be influenced by market volatility going forward but it probably won't be particularly sensitive to it. Beta is worth considering, but it's also important to consider whether M/I Homes is growing earnings and revenue. You can take a look for yourself, below.

NYSE:MHO Income Statement, January 27th 2020

Could MHO's size cause it to be more volatile?

M/I Homes is a small cap stock with a market capitalisation of US$1.3b. Most companies this size are actively traded.

What this means for you:

Since M/I Homes has a beta close to one, it will probably show a positive return when the market is moving up, based on history. If you're trying to generate better returns than the market, it would be worth thinking about other metrics such as cashflows, dividends and revenue growth might be a more useful guide to the future. In order to fully understand whether MHO is a good investment for you, we also need to consider important company-specific fundamentals such as M/I Homes’s financial health and performance track record. I urge you to continue your research by taking a look at the following:

  1. Future Outlook: What are well-informed industry analysts predicting for MHO’s future growth? Take a look at our free research report of analyst consensus for MHO’s outlook.
  2. Past Track Record: Has MHO been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of MHO's historicals for more clarity.
  3. Other Interesting Stocks: It's worth checking to see how MHO measures up against other companies on valuation. You could start with this free list of prospective options.

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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.