Watch Out: Barbarians At The Gate For Meritage Homes Corporation (MTH)

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Meritage Homes Corporation ( MTH) as a "barbarian at the gate" (strong stocks crossing above resistance with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Meritage Homes Corporation as such a stock due to the following factors:

  • MTH has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $27.2 million.
  • MTH has traded 734,848 shares today.
  • MTH traded in a range 214.4% of the normal price range with a price range of $3.19.
  • MTH traded above its daily resistance level (quality: 90 days, meaning that the stock is crossing a resistance level set by the last 90 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Barbarian at the Gate' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying positive price action. In this case, the stock crossed an important inflection point; namely, 'resistance' while at the same time the range of the stock's movement in price is more than twice its normal size. This large range foreshadows a possible continuation as the stock moves higher.

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More details on MTH:

Meritage Homes Corporation engages in designing and building single-family detached homes. It offers a range of homes for various homebuyers, including first-time, move-up, active adult, and luxury. The company provides its homes under the Meritage Homes and Monterey Homes names. MTH has a PE ratio of 11.0. Currently there are 4 analysts that rate Meritage Homes Corporation a buy, 1 analyst rates it a sell, and 5 rate it a hold.

The average volume for Meritage Homes Corporation has been 660,200 shares per day over the past 30 days. Meritage Homes has a market cap of $1.6 billion and is part of the industrial goods sector and materials & construction industry. The stock has a beta of 1.72 and a short float of 4.1% with 2.16 days to cover. Shares are up 16.5% year to date as of the close of trading on Friday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Meritage Homes Corporation as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, impressive record of earnings per share growth, compelling growth in net income, notable return on equity and attractive valuation levels. We feel these strengths outweigh the fact that the company shows low profit margins.

Highlights from the ratings report include:
  • MTH's very impressive revenue growth greatly exceeded the industry average of 23.1%. Since the same quarter one year prior, revenues leaped by 60.0%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • MERITAGE HOMES CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, MERITAGE HOMES CORP turned its bottom line around by earning $2.77 versus -$0.65 in the prior year. This year, the market expects an improvement in earnings ($2.80 versus $2.77).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Household Durables industry. The net income increased by 251.6% when compared to the same quarter one year prior, rising from $8.01 million to $28.14 million.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Household Durables industry and the overall market, MERITAGE HOMES CORP's return on equity exceeds that of both the industry average and the S&P 500.

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