Is M/I Homes (MHO) a Strong Buy Despite Declining Earnings?

In the volatile world of homebuilding stocks, M/I Homes (MHO) has emerged as a polarizing pick. Despite a Zacks Rank of #5 (Strong Sell) and declining earnings, the stock's valuation metrics and mixed analyst sentiment suggest a compelling case for contrarian value investors. This analysis explores whether MHO's current undervaluation and momentum divergence justify a buying opportunity.

Valuation Metrics: A Contrarian's Dream

M/I Homes is trading at a significant discount relative to its fundamentals. According to a report by AAII, the company holds a Value Score of 85, placing it in the “undervalued” category based on metrics like price-to-sales (0.9), price-to-earnings (8.0), and enterprise-value-to-EBITDA ratios 6 Undervalued Household Durables Stocks for Wednesday, September 03, 2025^[2]. These figures starkly contrast with the industry median, suggesting the stock is trading at a material discount to its intrinsic value.

The forward P/E ratio further underscores this divergence. While sources report varying figures (ranging from 5.76 to 11.14), even the highest estimate places MHO well below the S&P 500's average forward P/E of 15. This low valuation is supported by robust profitability metrics: a 17.6% return on equity (ROE), 11.3% return on assets (ROA), and an 11.4% net profit margin M/I HOMES INC (MHO) Factor Report^[1]. Such metrics indicate that MHO's operational efficiency and pricing power remain intact, even as earnings decline.

Momentum Divergence: A Cautionary Signal

Momentum indicators tell a more nuanced story. MHO's AAII Growth Grade of “C” reflects average growth potential compared to peers like Toll Brothers (TOL), which holds a “B” rating 6 Undervalued Household Durables Stocks for Wednesday, September 03, 2025^[2]. While this suggests MHO is not a high-growth stock, its 10.8% year-to-date price increase in 2025 and a 7.2% rise over five trading days in late August 2025 indicate some positive momentum 6 Undervalued Household Durables Stocks for Wednesday, September 03, 2025^[2].

However, the Zacks Rank of #5—a composite of earnings and revenue forecast revisions—casts doubt on near-term optimism. This “Strong Sell” rating, based on downward revisions to analyst estimates, highlights concerns about the company's ability to navigate a slowing housing market M/I HOMES INC (MHO) Factor Report^[1]. The disconnect between valuation and momentum metrics—a hallmark of contrarian investing—raises the question: Is MHO's undervaluation a sign of market overreaction, or a warning of deeper structural issues?

Earnings Decline: Cyclical or Structural?

MHO's earnings challenges are tied to broader industry headwinds. Homebuilder stocks have faced pressure from rising interest rates and a cooling housing market in 2025. Yet, MHO's trailing 12-month revenue of $4.5 billion and 11.4% net margin suggest resilience M/I HOMES INC (MHO) Factor Report^[1]. Analysts' mixed outlook—ranging from “Sell” to “Strong Buy” with an average price target of $162.50—reflects uncertainty about the duration of these headwinds M/I Homes, Inc. (NYSE:MHO) Given Consensus Rating of ^[3].

For contrarian investors, the key is to differentiate between cyclical corrections and structural decline. MHO's strong balance sheet (debt-to-equity ratio of 0.32) and 98.2% institutional ownership M/I HOMES INC (MHO) Factor Report^[1] imply confidence in its long-term prospects. If the housing market rebounds, as some analysts predict, MHO's low valuation could unlock significant upside.

The Case for a Strong Buy

Despite the Zacks Rank's bearish stance, MHO's fundamentals align with the principles of contrarian value investing. Its undervaluation, supported by AAII's Value Grade of “A” and a forward P/E well below industry peers, suggests the market is pricing in worst-case scenarios. Momentum divergence—where valuation metrics outperform price action—often precedes reversals in stocks with strong fundamentals.

Moreover, MHO's institutional ownership and profitability metrics indicate that large investors see long-term value. For investors willing to ride out short-term volatility, the stock's current price of $157.22 offers a margin of safety, with analysts' average price target implying over 8% upside M/I Homes, Inc. (NYSE:MHO) Given Consensus Rating of ^[3].

Risks and Considerations

Critics will point to the Zacks Rank and declining earnings as red flags. A prolonged housing slump or further interest rate hikes could exacerbate MHO's challenges. Additionally, the wide range of forward P/E estimates (5.76–11.14) reflects uncertainty about future earnings, which could lead to further volatility.

Conclusion

M/I Homes (MHO) presents a classic contrarian value case: a fundamentally strong company trading at a significant discount to its intrinsic value. While the Zacks Rank and declining earnings warrant caution, the stock's valuation metrics, profitability, and institutional backing suggest the market may be overcorrecting. For investors with a medium-term horizon and a tolerance for volatility, MHO could offer an attractive entry point—if the housing market's cyclical nature proves more resilient than feared.