• Meritage Homes, a US homebuilder focused on energy-efficient single-family houses, has recently reported that demand has weakened, with its backlog shrinking by an average 34.4% over the past two years.
• Over the same period, earnings per share fell more sharply than revenue, suggesting that each home sold has become less profitable for the company.
• Next, we will examine how the combination of shrinking backlogs and thinner margins shapes Meritage Homes’ investment narrative.

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What Is Meritage Homes' Investment Narrative?

To own Meritage Homes today, you need to believe that its focus on energy-efficient entry-level and first-move-up buyers can still translate into solid, if slower, earnings power even as demand cools. The recent update that backlogs have fallen by about a third and that earnings per share have compressed more than revenue sharpens the near-term story: order trends and margins become the key catalysts, while the dividend track record and low earnings multiple may help support sentiment if results remain within guidance. On the risk side, shrinking backlogs and thinner margins now sit alongside already softer profit growth and a dividend that has not been fully covered by free cash flow, making execution on costs and pricing more important than before.

However, shrinking backlogs and thinner margins raise fresh questions that investors should not overlook. Despite retreating, Meritage Homes' shares might still be trading above their fair value and there could be some more downside. Discover how much.

Exploring Other Perspectives

Three Simply Wall St Community fair value views on Meritage span from about US$74 to a very large US$325.98, underlining how differently investors weigh shrinking backlogs, margin pressure and slower expected growth for the business. This spread invites you to weigh multiple perspectives against the company’s newer demand and profitability challenges when forming your own view.

Explore 3 other fair value estimates on Meritage Homes - why the stock might be worth over 4x more than the current price!

Build Your Own Meritage Homes Narrative

Disagree with this assessment? Create your own narrative in under 3 minutes - extraordinary investment returns rarely come from following the herd.

• A great starting point for your Meritage Homes research is our analysis highlighting 2 key rewards and 1 important warning sign that could impact your investment decision.
• Our free Meritage Homes research report provides a comprehensive fundamental analysis summarized in a single visual - the Snowflake - making it easy to evaluate Meritage Homes' overall financial health at a glance.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.