Should You Investigate Meritage Homes Corporation (NYSE:MTH) At US$65.95?
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According to our price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. In this instance, we've used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock's cash flows. We find that Meritage Homes's ratio of 6.55x is trading slightly below its industry peers' ratio of 8.16x, which means if you buy Meritage Homes today, you'd be paying a reasonable price for it. And if you believe Meritage Homes should be trading in this range, then there isn't much room for the share price to grow beyond the levels of other industry peers over the long-term. So, is there another chance to buy low in the future? Given that Meritage Homes's share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
View our latest analysis for Meritage Homes
Future outlook is an important aspect when you're looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it's the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. However, with a negative profit growth of -6.1% expected over the next couple of years, near-term growth certainly doesn't appear to be a driver for a buy decision for Meritage Homes. This certainty tips the risk-return scale towards higher risk.
Are you a shareholder? MTH seems priced close to industry peers right now, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on MTH, take a look at whether its fundamentals have changed.
Are you a potential investor? If you've been keeping an eye on MTH for a while, now may not be the most advantageous time to buy, given it is trading around industry price multiples. This means there's less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven't considered today, which can help gel your views on MTH should the price fluctuate below the industry PE ratio.
If you want to dive deeper into Meritage Homes, you'd also look into what risks it is currently facing. Our analysis shows 3 warning signs for Meritage Homes (2 don't sit too well with us!) and we strongly recommend you look at these before investing.
If you are no longer interested in Meritage Homes, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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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