Wayman Value Investing - New Stock Recommendation - September 2024
A new position is being added to the Wayman portfolio
# # # New Position # # #
M/I Homes (MHO)
Recent Price: 155.70
Market Cap: 4.31B
P/FCF: 16.08
P/E: 8.56
P/S: 1.03
LT Debt/Eq: 0.36
Projected 4yr FCF: 1.71B
Wayman Portfolio Tier: Gather
M/I Homes (MHO) is a Columbus, Ohio-based homebuilder that has been in operation since 1976. Founded by Irving and Melvin Schottenstein, the company has grown from its Midwest roots to become one of the nation's leading builders of single-family homes. MHO operates in 15 markets across 10 states, primarily in the Midwest and Southeast regions of the United States. The company's business model focuses on constructing move-up, entry-level, and luxury single-family homes, as well as offering mortgage and title services through its financial services segment.
From a value investing perspective, M/I Homes presents an intriguing opportunity in the current market environment. The housing sector has faced headwinds due to high interest rates and affordability concerns. However, this broad-brush approach by the market has created pockets of value for discerning investors.
The company's financial health is robust, with a debt-to-capital ratio of around 30%, which is conservative for the homebuilding industry. This prudent capital structure provides MHO with flexibility to weather economic cycles and potentially capitalize on land acquisition opportunities that may arise from distressed competitors. Furthermore, the company has consistently grown its book value per share over the past decade, demonstrating management's ability to create shareholder value through various market conditions.
M/I Homes' strategic focus on first-time and move-up buyers in growing markets positions it well for long-term growth. The company has wisely diversified its geographic footprint, reducing exposure to any single regional market. This strategy, combined with its emphasis on affordability and energy efficiency in home designs, aligns well with demographic trends and consumer preferences, potentially providing a sustainable competitive advantage.
It's worth noting that the cyclical nature of the homebuilding industry can lead to significant volatility in earnings and stock prices. However, for patient investors with a long-term horizon, these cycles can create attractive entry points.
While short-term headwinds in the housing market are undeniable, M/I Homes' current valuation appears to more than compensate for these risks. The combination of a strong balance sheet, prudent management, strategic market positioning, and a reasonable valuation makes MHO an attractive opportunity for value investors willing to look beyond near-term market noise.
Please keep in mind that while some investors might rely on market catalysts when considering what new positions to take, Wayman considers its style to be “catalyst-free investing.” Our reason for purchasing will always be based on our calculations which show a business is worth far more than where the market is pricing it. - Frank Memcaj, Founder of Wayman Value Investing