We Like These Underlying Return On Capital Trends At M/I Homes (NYSE:MHO)
What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at M/I Homes (NYSE:MHO) so let's look a bit deeper.
What is Return On Capital Employed (ROCE)?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for M/I Homes:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.19 = US$457m ÷ (US$2.9b - US$432m) (Based on the trailing twelve months to June 2021).
Therefore, M/I Homes has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 15% generated by the Consumer Durables industry.
View our latest analysis for M/I Homes
Above you can see how the current ROCE for M/I Homes compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for M/I Homes.
What The Trend Of ROCE Can Tell Us
Investors would be pleased with what's happening at M/I Homes. Over the last five years, returns on capital employed have risen substantially to 19%. The amount of capital employed has increased too, by 97%. So we're very much inspired by what we're seeing at M/I Homes thanks to its ability to profitably reinvest capital.
Our Take On M/I Homes' ROCE
All in all, it's terrific to see that M/I Homes is reaping the rewards from prior investments and is growing its capital base. And a remarkable 183% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
Like most companies, M/I Homes does come with some risks, and we've found 2 warning signs that you should be aware of.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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.
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