M/I Homes’ (NYSE:MHO) 7.6% YoY earnings expansion surpassed the shareholder returns over the past five years

The main point of investing for the long term is to make money. Furthermore, you’d generally like to see the share price rise faster than the market. But M/I Homes, Inc. (NYSE:MHO) has fallen short of that second goal, with a share price rise of 34% over five years, which is below the market return. Zooming in, the stock is actually down 23% in the last year.

On the back of a solid 7-day performance, let’s check what role the company’s fundamentals have played in driving long term shareholder returns.

Our analysis indicates that MHO is potentially undervalued!

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

Over half a decade, M/I Homes managed to grow its earnings per share at 44% a year. This EPS growth is higher than the 6% average annual increase in the share price. So one could conclude that the broader market has become more cautious towards the stock. This cautious sentiment is reflected in its (fairly low) P/E ratio of 2.64.

The company’s earnings per share (over time) is depicted in the image below (click to see the exact numbers).

We know that M/I Homes has improved its bottom line over the last three years, but what does the future have in store? You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

A Different Perspective

We regret to report that M/I Homes shareholders are down 23% for the year. Unfortunately, that’s worse than the broader market decline of 21%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there’s a good opportunity. On the bright side, long term shareholders have made money, with a gain of 6% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For instance, we’ve identified 2 warning signs for M/I Homes that you should be aware of.

Of course M/I Homes may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

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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.