Homebuilder Meritage Homes (NYSE: MTH) missed Wall Street’s revenue expectations in Q3 CY2025, with sales falling 11.3% year on year to $1.42 billion. Next quarter’s revenue guidance of $1.5 billion underwhelmed, coming in 3.2% below analysts’ estimates. Its GAAP profit of $1.39 per share was 14.6% below analysts’ consensus estimates.

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"Meritage successfully navigated a challenging third quarter, exceeding 2024 sales volumes and ending the quarter with our highest ever community count of 334, which was a 20% increase year-over-year. We leaned into our strategy, providing our customers certainty amidst an evolving housing market with a healthy selection of available inventory and payment affordability solutions," said Steven J. Hilton, executive chairman of Meritage Homes.

Company Overview

Originally founded in 1985 in Arizona as Monterey Homes, Meritage Homes (NYSE: MTH) is a homebuilder specializing in designing and constructing energy-efficient and single-family homes in the US.

Revenue Growth

A company’s long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Unfortunately, Meritage Homes’s 7.4% annualized revenue growth over the last five years was mediocre. This fell short of our benchmark for the industrials sector and is a tough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Meritage Homes’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 3.5% annually.

We can dig further into the company’s revenue dynamics by analyzing its backlog, or the value of its outstanding orders that have not yet been executed or delivered. Meritage Homes’s backlog reached $670 million in the latest quarter and averaged 34.4% year-on-year declines over the last two years. Because this number is lower than its revenue growth, we can see the company hasn’t secured enough new orders to maintain its growth rate in the future.

This quarter, Meritage Homes missed Wall Street’s estimates and reported a rather uninspiring 11.3% year-on-year revenue decline, generating $1.42 billion of revenue. Company management is currently guiding for a 7.5% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 1.7% over the next 12 months. Although this projection suggests its newer products and services will spur better top-line performance, it is still below average for the sector.

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Operating Margin

Meritage Homes has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 16.4%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Looking at the trend in its profitability, Meritage Homes’s operating margin decreased by 4.5 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

Earnings Per Share

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Meritage Homes’s decent 9.1% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Meritage Homes, its two-year annual EPS declines of 16.8% mark a reversal from its five-year trend. We hope Meritage Homes can return to earnings growth in the future.

In Q3, Meritage Homes reported EPS of $1.39, down from $2.67 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Meritage Homes’s full-year EPS of $7.48 to shrink by 1.2%.

Key Takeaways from Meritage Homes’s Q3 Results

We struggled to find many positives in these results as its revenue and EPS fell short of Wall Street’s estimates. Its quarterly guidance for both metrics also missed. Overall, this was a weaker quarter. The stock traded down 7.2% to $65.90 immediately after reporting.

Meritage Homes’s latest earnings report disappointed. One quarter doesn’t define a company’s quality, so let’s explore whether the stock is a buy at the current price. The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free for active Edge members.