What Happened?
Shares of homebuilder Meritage Homes (NYSE: MTH) jumped 3.9% in the afternoon session after investors grew optimistic about the housing sector amid favorable inflation data that increased the probability of a Federal Reserve interest rate cut and news of an extension of the U.S.-China trade truce. This optimism fueled a broader market rally, with homebuilders benefiting from the increased likelihood of a Federal Reserve interest rate cut. Recent data showed inflation holding steady at 2.7%, bolstering the case for the Fed to lower its benchmark rate, which would likely reduce mortgage rates and make homeownership more accessible. The positive sentiment was reinforced by a report from the National Association of REALTORS® showing that national median single-family home prices reached a record high in the second quarter. The housing sector as a whole has shown strength, with other homebuilders also seeing strong returns recently.
The shares closed the day at $74.52, up 4% from previous close.
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What Is The Market Telling Us
Meritage Homes’s shares are quite volatile and have had 16 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 19 days ago when the stock dropped 6.1% on the news that the company reported a steep decline in its second-quarter profitability and revealed shrinking margins. Net income fell 37% to $147 million compared to the previous year, while home closing revenue dipped 5%. A significant factor was the company's gross margin from home closings, which contracted to 21.1% from 25.9% a year earlier, a change the company attributed to higher financial incentives and land costs. The outlook for future business also appeared weaker, as the value of the company's backlog dropped by 37%, and the number of units in the backlog decreased by 36%. Furthermore, Meritage Homes lowered its projected spending on land acquisition and development for the full year, signaling a more cautious approach ahead.
Meritage Homes is down 2% since the beginning of the year, and at $74.51 per share, it is trading 30.3% below its 52-week high of $106.85 from September 2024. Investors who bought $1,000 worth of Meritage Homes’s shares 5 years ago would now be looking at an investment worth $1,496.
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