Why Meritage Homes (MTH) Stock Is Trading Lower Today

What Happened?

Shares of homebuilder Meritage Homes (NYSE:MTH) fell 6.1% in the afternoon session after 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.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Meritage Homes? Access our full analysis report here, it’s free.

What Is The Market Telling Us

Meritage Homes’s shares are quite volatile and have had 15 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 10 days ago when the stock dropped 3% on the news that the announcement of significant new tariff threats against major U.S. trading partners, sparking investor fears over rising construction costs and pressure on profit margins. 

Over the weekend, the White House announced potential new tariffs of 35% on Canadian imports and 30% on both the European Union and Mexico, slated to take effect by August 1st if new trade agreements are not reached. This news sent a chill through the broader market, with pre-market futures trading notably lower. 

For homebuilders like Meritage Homes, the prospect of steep tariffs is particularly concerning. The construction industry relies heavily on imported materials, and such levies could significantly increase the cost of goods, squeezing profitability. These increased costs could either be absorbed by the company, hurting earnings, or passed on to consumers through higher home prices, which could dampen demand in an already sensitive housing market.

Meritage Homes is down 7.1% since the beginning of the year, and at $70.60 per share, it is trading 33.9% 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 $1,545.

Today’s young investors won’t have read the timeless lessons in Gorilla Game: Picking Winners In High Technology because it was written more than 20 years ago when Microsoft and Apple were first establishing their supremacy. But if we apply the same principles, then enterprise software stocks leveraging their own generative AI capabilities may well be the Gorillas of the future. So, in that spirit, we are excited to present our Special Free Report on a profitable, fast-growing enterprise software stock that is already riding the automation wave and looking to catch the generative AI next.