MHO

M/I Homes is a textbook 'good company at a cyclical low' setup. FY2025 was undeniably soft — revenue dipped 1.9% to $4.42B, net income fell 28.5% to $403M, and diluted EPS of $14.74 was down 25.2%, with gross margin compressing 360bps to 23.0% per the MD&A. Management attributes this squarely to 'elevated mortgage interest rates, inflationary pressures, affordability issues and overall economic uncertainty,' with new contracts down 4% and absorption pace slowing from 3.3 to 3.0 per community. This is cyclical pressure, not a broken business.

What the numbers reveal is exceptional balance-sheet quality at the trough. Liabilities/equity sits at just 0.51x, equity grew 7.7% to $3.17B, and the company still ended the year with $689M in unrestricted cash, zero borrowings on its $900M revolver, and only $277M of notes payable due within 12 months. Retained earnings climbed 14.1% to $3.27B even after $202M of buybacks (a 14.2% increase YoY) that shrank the share count 5%. ROE of 12.7% is respectable in the worst part of the cycle for housing. The company is buying back stock aggressively into weakness — a high-confidence capital-allocation signal.