Simple Concepts Research Group

KB Home (NYSE: KBH) Stock Has Entered Deep Discount Territory

by | Apr 11, 2022 | 52 Week Lows, Stock Picks

kb homes kbh stock valuation

KB Home (KBH) Company Overview & Stock Price Forecast

This article provides a brief analysis and stock rating for KB Home (KBH) including an updated stock price target. Additional data on the company’s earnings yield, price/earnings ratio, return on invested capital and YTD performance are discussed as well.

KB Home Fundamentals

KBH Stock Rating

Stock Price Target: $47.61

In the section below, we discuss the earnings yield, P/E, return on invested capital and YTD performance for KB Home in comparison to the Homebuilding industry and the S&P 500.

KB Home is a Small Cap company with a Market Cap of $2.95B.

How are investors using KB Home earnings yield to assess the company?

KB Home (KBH)_ Earnings Yield in Comparison to the Homebuilding Industry, S&P 500 and 10 Year Treasury Rate

The earnings yield is used to show the percentage of a company’s earnings per share. Investors typically use earnings yield to determine which assets are underpriced or overpriced relative to other variables, like sector, industry or bond yields. Simply put, the earnings yield of a company can be used to assess how expensive a company is in relation to the earnings that are generated. When valuing companies, the SIS Research Group does not utilize the inverse P/E ratio to calculate the earnings yield. Instead, we use an adjusted earning yield calculation to capture variation amongst companies (i.e. debt and tax rates).

The current earnings yield for KB Home is 13.74%, in comparison to 3.91% for the S&P 500 and 2.72% for the 10-year treasury bond. The median earnings yield for the Homebuilding industry is 12.44%.

What does KB Home Price-to-Earnings Ratio (P/E) tell investors about the company?

KB Home (KBH)_ Price-to-Earnings, Price-to-Sales and Price-to-Book Value in Comparison to the Homebuilding Industry and the S&P 500

The price-to-earnings ratio (P/E) is a relatively popular metric used by investors and analysts for valuing a company’s stock. The P/E ratio can be used to show how a stock’s valuation compares to other companies and the total market. Investors use the P/E ratio to determine what the market is willing to pay today based on a company’s past or future earnings. A high P/E ratio could mean that a stock’s price is too high relative to earnings, which could be a signal that a stock is currently overvalued. In turn, a low P/E ratio could indicate that a company’s current stock price is low relative to earnings. 

KB Home is currently trading at a P/E of 4.79. The P/E for the Homebuilding industry is 9.06 and the P/E for the S&P 500 is 25.59.

What is the current Price-to-Sales Ratio (P/S) for KB Home?

The Price-to-Sales Ratio (P/S) looks at a company’s market cap and revenue to determine valuation. The P/S ratio is calculated by taking a company’s market cap and dividing by the total sales or revenue. The P/S ratio gives an idea of how much the market values every dollar of a company’s sales and can be effective in valuing unprofitable growth stocks or companies that are currently undergoing special situations or challenges. A lower the P/S ratio can be an indicator of good value.

KB Home is currently trading at a P/S of 0.50. The P/S for the Homebuilding industry is 1.22 and the P/S for the S&P 500 is 2.97.

How does KB Home Price-to-BookRatio (P/B) compare to the Homebuilding industry?

Price-to-book value (P/B) is the ratio of the market value of a company’s shares divided by its book value of equity (the value of it’s assets on the books). The book value is the difference between the book value of assets and liabilities. Typically, investors use the P/B ratio to assess if a stock is valued properly (a value of one means that the stock price is trading in line with the book value of the company). A company with a high P/B ratio could mean the stock price is overvalued as well as the converse.

KB Home P/B ratio is 0.90. The P/B for the Homebuilding industry is 2.20 and the P/B for the S&P 500 is 4.57.

How attractive is KB Home Return on Invested Capital (ROIC) to investors?

KB Home (KBH)_ Return on Invested Capital in Comparison to the Homebuilding Industry and the S&P 500

Investors use the return on invested capital (ROIC) to assess how efficient a company is at turning capital into profits. The ROIC is the amount of money a company makes on it’s investments that is above the average cost of debt and equity.

Investors can use the ROIC to provide context for metrics like the (P/E) ratio. For instance, when used in isolation a low P/E ratio could suggest a company is oversold but the decline could be because a company is no longer generating value for shareholders. Conversely, companies that consistently generate high rates of ROIC can plausibly trade at a premium compared to other stocks, even if their P/E ratios are high.

KB Home ROIC is currently 12.50% in comparison to 13.04% for the Homebuilding industry and 9.10% for the S&P 500.

KB Home (KBH)_ Price Target & 52-Week Price Range

How has KBH stock performed over the past year? What is the current analyst price target?

Over the past 52 weeks, KB Home has traded between the range of $30.13 and $52.48.

The current Analyst Price Target for KB Home is $47.61.

What is KB Home YOY Performance in comparison to its industry and the total market?

The YOY performance for KB Home is -36.81%. The Homebuilding industry has a YOY performance of -24.07% in comparison to the YOY S&P 500 performance of 10.17%.

KB Home (KBH)_ YOY Performance in Comparison to the Homebuilding Industry and the S&P 500

Recent Financial Results (Q1, 2022)

  • Revenues grew 23% to $1.40B
  • Average selling price rose 22% to $486,100
  • Homebuilding operating income grew 49% to $169.6M. The homebuilding operating income margin increased to 12.2%
  • The Company’s financial services operations pretax income of $8.4M was essentially flat
  • Total pretax income grew 44% to $178.1M and, as a percentage of revenues, increased to 12.7%
  • Net income of $134.3M and diluted earnings per share of $1.47 increased 38% and 44%, respectively

Stock Price Target: $47.61

Company Overview

KBH Stock Rating

KB Home operates as a homebuilding company in the United States. It operates through four segments: West Coast, Southwest, Central, and Southeast. It builds and sells various homes, including attached and detached single-family residential homes, townhomes, and condominiums primarily for first-time, first move-up, second move-up, and active adult homebuyers.

The company also offers financial services, such as insurance products and title services. It has operations in Arizona, California, Colorado, Florida, Nevada, North Carolina, Texas, and Washington.

The company was formerly known as Kaufman and Broad Home Corporation and changed its name to KB Home in January 2001. KB Home was founded in 1957 and is headquartered in Los Angeles, California. The current CEO is Jeffrey Mezger.

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This material is provided for informational purposes only and is not financial advice. The information contained herein should not solely be used for the formation of an investment decision, whether you are a long term or short term investor.