Simple Concepts Research Group

Should Investors Dump Their Shares Of Meritage Homes (NYSE: MTH)?

by | Mar 28, 2022 | 52 Week Lows, Stock Picks

meritage homes mth stock valuation

Meritage Homes (MTH) Company Overview & Stock Price Forecast

This article provides a brief analysis and stock rating for Meritage Homes (MTH) including an updated stock price target. Additional data on the company’s earnings yield, price/earnings ratio, return on invested capital and YTD performance are discussed as well.

Meritage Homes Fundamentals

MTH Stock Rating

Stock Price Target: $128.13

In the section below, we discuss the earnings yield, P/E, return on invested capital and YTD performance for Meritage Homes in comparison to the Homebuilding industry and the S&P 500.

Meritage Homes is a Small Cap company with a Market Cap of $3.13B.

How are investors using Meritage Homes earnings yield to assess the company?

Meritage Homes (MTH)_ Earnings Yield in Comparison to the Homebuilding Industry, S&P 500 and 10 Year Treasury Rate

The earnings yield is used to show the percentage of a company’s earnings per share. Investors typically use earnings yield to determine which assets are underpriced or overpriced relative to other variables, like sector, industry or bond yields. Simply put, the earnings yield of a company can be used to assess how expensive a company is in relation to the earnings that are generated. When valuing companies, the SIS Research Group does not utilize the inverse P/E ratio to calculate the earnings yield. Instead, we use an adjusted earning yield calculation to capture variation amongst companies (i.e. debt and tax rates).

The current earnings yield for Meritage Homes is 19.01%, in comparison to 3.86% for the S&P 500 and 2.48% for the 10-year treasury bond. The median earnings yield for the Homebuilding industry is 12.44%.

What does Meritage Homes Price-to-Earnings Ratio (P/E) tell investors about the company?

Meritage Homes (MTH)_ Price-to-Earnings, Price-to-Sales and Price-to-Book Value in Comparison to the Homebuilding Industry and the S&P 500

The price-to-earnings ratio (P/E) is a relatively popular metric used by investors and analysts for valuing a company’s stock. The P/E ratio can be used to show how a stock’s valuation compares to other companies and the total market. Investors use the P/E ratio to determine what the market is willing to pay today based on a company’s past or future earnings. A high P/E ratio could mean that a stock’s price is too high relative to earnings, which could be a signal that a stock is currently overvalued. In turn, a low P/E ratio could indicate that a company’s current stock price is low relative to earnings. 

Meritage Homes is currently trading at a P/E of 4.39. The P/E for the Homebuilding industry is 9.78 and the P/E for the S&P 500 is 25.91.

What is the current Price-to-Sales Ratio (P/S) for Meritage Homes?

The Price-to-Sales Ratio (P/S) looks at a company’s market cap and revenue to determine valuation. The P/S ratio is calculated by taking a company’s market cap and dividing by the total sales or revenue. The P/S ratio gives an idea of how much the market values every dollar of a company’s sales and can be effective in valuing unprofitable growth stocks or companies that are currently undergoing special situations or challenges. A lower the P/S ratio can be an indicator of good value.

Meritage Homes is currently trading at a P/S of 0.63. The P/S for the Homebuilding industry is 1.22 and the P/S for the S&P 500 is 3.01.

How does Meritage Homes Price-to-BookRatio (P/B) compare to the Homebuilding industry?

Price-to-book value (P/B) is the ratio of the market value of a company’s shares divided by its book value of equity (the value of it’s assets on the books). The book value is the difference between the book value of assets and liabilities. Typically, investors use the P/B ratio to assess if a stock is valued properly (a value of one means that the stock price is trading in line with the book value of the company). A company with a high P/B ratio could mean the stock price is overvalued as well as the converse.

Meritage Homes P/B ratio is 1.04. The P/B for the Homebuilding industry is 2.20 and the P/B for the S&P 500 is 4.62.

How attractive is Meritage Homes Return on Invested Capital (ROIC) to investors?

Meritage Homes (MTH)_ Return on Invested Capital in Comparison to the HomebuildingIndustry and the S&P 500

Investors use the return on invested capital (ROIC) to assess how efficient a company is at turning capital into profits. The ROIC is the amount of money a company makes on it’s investments that is above the average cost of debt and equity.

Investors can use the ROIC to provide context for metrics like the (P/E) ratio. For instance, when used in isolation a low P/E ratio could suggest a company is oversold but the decline could be because a company is no longer generating value for shareholders. Conversely, companies that consistently generate high rates of ROIC can plausibly trade at a premium compared to other stocks, even if their P/E ratios are high.

Meritage Homes ROIC is currently 19.37% in comparison to 22.92% for the Homebuilding industry and 9.10% for the S&P 500.

Meritage Homes (MTH)_ Price Target & 52-Week Price Range

How has MTH stock performed over the past year? What is the current analyst price target?

Over the past 52 weeks, Meritage Homes has traded between the range of $82.87 and $125.01.

The current Analyst Price Target for Meritage Homes is $128.13.

What is Meritage Homes YOY Performance in comparison to its industry and the total market?

The YOY performance for Meritage Homes is -10.55%. The Homebuilding industry has a YOY performance of -10.72% in comparison to the YOY S&P 500 performance of 16.18%.

Meritage Homes (MTH)_ YOY Performance in Comparison to the Homebuilding Industry and the S&P 500

Recent Financial Results (2021 Full Year)

  • Home closing revenue for the full year 2021 increased 14% year-over-year to $5.1B due to 8% improved home closing volume and 6% higher ASP resulting from the favorable pricing environment
  • Home closing gross margin improved 580 bps to 27.8% for the full year 2021, compared to 22.0% in 2020, reflecting the benefits of higher ASP and better leveraging of fixed costs
  • Cash and cash equivalents at December 2021 totaled $618.3M, compared to $745.6M at December 2020, reflecting increased investments in real estate and development and share repurchases
  • Real estate assets increased from $2.8B at December 2020 to $3.7B at December 2021
  • During the full year 2021, the Company repurchased 639,346 shares of stock for $61M, of which 243,885 shares of stock totaling $24M were repurchased during the fourth quarter of 2021
  • $153.4M remains available to repurchase under our authorized share repurchase program as of December 2021

Stock Price Target: $128.13

Company Overview

MTH Stock Rating

Meritage Homes Corporation designs and builds single-family homes in the United States. The company operates through two segments, Homebuilding and Financial Services. It acquires and develops land; and constructs, markets, and sells homes for first-time and first move-up buyers.

The company also offers title insurance and closing/settlement services to its homebuyers. It builds and sells homes in Texas, Arizona, California, Colorado, Florida, North Carolina, South Carolina, Georgia, and Tennessee under the Meritage Homes brand name.

Meritage Homes Corporation was founded in 1985 and is based in Scottsdale, Arizona. The current CEO is Steven Hilton.

Be sure to add Meritage Homes (MTH) to your Watch List and if you haven’t done so already, check in on the performance of our Current Portfolio. Keep it simple and always do your due diligence.

This material is provided for informational purposes only and is not financial advice. The information contained herein should not solely be used for the formation of an investment decision, whether you are a long term or short term investor.