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Here's Why Meritage Homes Stock Was Rising Monday

By Matthew Frankel, CFP® - Updated Apr 6, 2020 at 3:25PM

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The homebuilder gave investors a glimpse of its first-quarter results.

What happened

To say that the stock market had a good day on Monday would be an understatement. The Dow Jones Industrial Average and S&P 500 ended the day up by nearly 8% and just over 7%, respectively.

Homebuilder Meritage Homes (MTH -0.23%) was a major standout, closing about 20% higher on the day.

Interior of home under construction.

Image source: Getty Images.

So what

There are two reasons for the big move. First, COVID-19 infection rates appear to be slowing in several key hot spots around the world, including New York State. The outbreak is still far from over, but this is the first good news we've seen related to the virus itself. 

Second, Meritage released some preliminary first-quarter numbers. This wasn't a full pre-announcement of earnings, but investors got a nice look at how the business is holding up.

A few of the highlights:

  • Meritage's first-quarter orders were up 23% year over year.
  • The March cancellation rate of 16% may sound high, but this isn't too bad considering that the cancellation rate was 12% last March and 13% in January and February.
  • Meritage had a backlog of 3,568 homes as of March 31, a 12% increase year over year.
  • The company had $1 billion in total liquidity as of March 31, so it has adequate capital to get through any tough times.
  • Most of the company's communities under construction are still being worked on, since home construction is considered an essential service in many areas.

Now what

The biggest reason for the volatility in the stock market isn't just the COVID-19 pandemic and the resulting recession, but the uncertainty of how it will affect individual businesses. Meritage just gave investors some much-needed clarity, and the news appears to be quite good.

Matthew Frankel, CFP has no position in any of the stocks mentioned. The Motley Fool recommends Meritage Homes. The Motley Fool has a disclosure policy.

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