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We saw here that the market values of home builders track reasonably well with their book values, and we saw here that currently most builders are trading at a discount to their book values. M/I Homes (NYSE:MHO) is one such company on that list, trading at a healthy discount of 58% to its book value. MHO's debt to capital level sits at just 30%, while others on that list are flirting with much higher debt levels. On the surface, MHO appears as though it could be a value play, and warrants a closer look.

Upon further inspection, it turns out that not all shareholder equity is owned by the common shareholders. A good chunk of it is in preferred shares, which trade as separate securities (MHO-A). If we back out the value of the preferreds, the discount to book value changes from 58% to just under 49%, which still remains relatively attractive.

But the question of future writedowns remains a concern for this industry, as we discussed here. MHO is not as geographically diversified as many other home builders, and has a large percentage of its business in Florida, one of the hardest hit areas of the housing crash. In fact, the vast majority of MHO's $22 million in writedowns in Q1 took place in Florida.

But even if MHO requires writedowns of the same magnitude as what it had last quarter ($22 million) for the next four quarters, it would still be trading at a 35% discount to book value for common shareholders. At its slow sales pace of last quarter, it would get through its inventory in about one and a half years.

As an aside, I am a little bit concerned about management excesses. During the real-estate bubble, it seems the company went out and bought a rather large airplane. To lower costs, it traded down to a smaller plane last quarter, picking up $9.5 million in the trade. It's a move in the right direction, but nevertheless it seems rather strange that a $500 million home builder requires its own airplane, but perhaps I'm just too nitpicky.

Overall, however, this company appears to have been over-punished by the markets, and as such offers a margin of safety. I would recommend this stock be owned as part of a long-term, well diversified, value portfolio.

Disclosure: None.

Source: M/I Homes: Over-Punished by the Markets