KB HOME (KBH): what the price requires
At today's price, KB HOME (KBH) is priced for +5.3% growth. boothcheck doesn't publish a fair value or a price target; it shows what the price assumes, so you can judge whether that bar is too high.
Generated: 2026-07-14 · Exported: 2026-07-16 · Source: https://boothcheck.com/report/KBH
Headline
| Field | Value |
|---|---|
| Ticker | KBH |
| Company | KB HOME |
| Current price | $54.64/sh |
| Composition | West Coast (homebuilding) 43% / Southwest (homebuilding) 20% / Central (homebuilding) 19% / Southeast (homebuilding) 18% / Financial services 0% |
What The Price Requires (Inversion)
The assumption today's price embeds, recovered by inverting the valuation.
| Field | Value |
|---|---|
| Inversion basis | whole-company |
| Implied growth | 5.3% |
| Multiple paid | 10x operating income |
Solve inputs: computed at a 11.4% cost of capital with 4% terminal growth over a 5-year stage; each 1pp of cost of capital moves the implied operating-profit growth ~5pp.
How unusual the bet is: within-range
| Reference | Value |
|---|---|
| vs own history | -1.36σ |
| cohort percentile (of 210 peers) | 15 |
| implied end-window share | 0% |
Valuation X-Ray
The price is supported by asset-based and earnings-power and relative-multiple and growth-DCF value. A value/asset-supported name, not a pure growth bet.
How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.
| Family | Median price/FV | Models | Reads |
|---|---|---|---|
| Asset | 0.92x | 4 | justifies |
| Earnings | 0.85x | 4 | justifies |
| Relative | 0.68x | 2 | justifies |
| Growth | 0.80x | 3 | justifies |
Families that justify the price: Asset, Earnings, Relative, Growth
The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 9.3%); the inversion above states its own rate.
Per-Model Detail (n=13)
| Model | Family | FV | Price/FV | Applicable | Methodology |
|---|---|---|---|---|---|
| DCF Perpetual Growth | Growth | $68.31 | 0.80x | yes | FCF base $0.5B, growth -10% (input: historical growth), terminal g 0.5%, WACC 9.3%, 5yr projection |
| DCF Exit Multiple | Growth | $72.97 | 0.75x | yes | Exit EV/EBITDA: 342.2x / 344.2x / 346.2x (bear / base = today's held flat / bull), 5yr |
| Relative Valuation | Relative | $48.72 | 1.12x | yes | P/E 18x (static sector reference · 2026-04), scenarios: 15.3x / 18.0x / 20.7x (bear / base = reference held flat / bull), EV/EBITDA 26.4x |
| Simple DDM | Growth | — | — | no | — |
| Two-Stage DDM | Growth | — | — | no | — |
| Simple Excess Return | Asset | $59.82 | 0.91x | yes | BV/sh $60.49, ROE (TTM) 9.1%, ke 9.3% |
| Two-Stage Excess Return | Asset | $59.50 | 0.92x | yes | 5yr excess ROE then converge to ke=9.3% |
| Discounted Future Market Cap | Growth | $23.61 | 2.31x | yes | Rev $5.9B, growth -14% (input: historical growth; tapered), Terminal P/S: 0.5x / 0.6x / 0.7x (bear / base = today's held flat / bull, cap 8x) |
| Growth-Adjusted P/E | Relative | — | — | no | — |
| Margin Trajectory | Growth | — | — | no | — |
| Earnings Power Value | Earnings | — | — | no | — |
| Residual Income | Asset | $59.44 | 0.92x | yes | BV $60.49 + 5yr PV of (ROE (TTM) 9.1% − Kₑ 9.3%) × BV; BV grows 5.9%/yr |
| Graham Number | Asset | $83.96 | 0.65x | yes | √(22.5 × EPS $5.18 × BVPS $60.49) — Graham's conservative floor |
| EV/EBITDA Relative | Relative | $1.90 | 28.76x | yes | EBITDA $0.01B × sector EV/EBITDA 12.0x (excluded from median) |
| FCF Yield | Earnings | $83.84 | 0.65x | yes | FCF $494.2M / Kₑ 9.3% — zero-growth perpetuity |
| SBC-Adj FCF Yield | Earnings | $76.26 | 0.72x | yes | SBC-adj FCF $0.45B (FCF $0.49B − SBC $0.04B) capitalized at Kₑ |
| Ben Graham Formula | Earnings | $4.34 | 12.59x | yes | EPS $5.18 × (8.5 + 2×-5.0%) × (4.4 / 5.3%) |
| ROIC-Justified P/B | Asset | — | — | no | — |
| P/Sales Sector | Relative | $232.29 | 0.24x | yes | Revenue $5.92B × sector P/S 2.5x |
| PEG Fair Value | Relative | — | — | no | — |
| Earnings Yield | Earnings | $56.00 | 0.98x | yes | EPS $5.18 / required return 9.3% (Rf 4.3% + ERP 5.0%) |
| Funds From Operations Multiple | Relative | — | — | no | — |
| Clinical Phase NPV | Growth | — | — | no | — |
| Merton | Asset | — | — | no | — |
| V5 Mechanical | — | — | — | no | — |
Solvency
| Field | Value |
|---|---|
| Share count CAGR (buyback) | -8.5% |
| Burning cash | no |
Operating profit is negative or near zero and the company has no demonstrated through-cycle (mid-cycle) operating margin to normalize against, so years-to-repay cannot be computed honestly.
Operating profit is negative or near zero and there is no demonstrated through-cycle (mid-cycle) operating margin to normalize against, so interest coverage cannot be computed honestly.
Bullet Takeaways
- KB Home builds entry-level and first-move-up homes across the West Coast, Southwest, Central, and Southeast on a built-to-order model, which gives it better demand visibility but ties its results directly to mortgage affordability for budget-conscious buyers.
- The defining pressure right now is margin, with housing gross margin falling to 15.2% from 19.3% as lower pricing, higher land costs, and weaker operating leverage hit a 27% revenue decline in the second quarter.
- Watch the order trajectory and the back-half margin guidance, with net orders down only 4% and the cancellation rate improving to 12% from 16%, against full-year delivery guidance of 10,500 to 11,000 homes.
Bull Case
The unusual thing about KB Home today is where the price sits relative to the methods: below most of them. Every family of valuation method, asset value, earnings power, peer multiples, and forward growth, lands at or above the current price, which is the opposite of the premium most stocks carry. A reader should sit with what that means. The market is paying less than the homebuilding assets, the current earnings power, and the peer multiples each suggest the business is worth, which is the profile of a value or out-of-favor situation rather than a stretched one.
The business backing that value is more defensive than a homebuilder's reputation suggests, because of how KB Home builds. It works to order from a streamlined library of standardized plans, which the 10-K describes as plans it periodically updates to incorporate "value-engineering enhancements, regulatory requirements and/or evolving consumer tastes" and which "facilitates our ability to shift" production toward what sells. Building to order rather than speculatively means KB Home carries less finished, unsold inventory into a downturn, and its homebuilding contracts have "an original expected duration of one year or less", so the business turns its capital rather than sitting on it. The company is also leaning into affordability, the one part of the market with structural demand: the 10-K notes elevated mortgage rates and an undersupply of homes have "strained housing affordability and raised demand for lower-priced homes", KB Home's core segment.
Management is using the down-cycle to buy back stock and grow the platform. The share count has fallen about 8.5% over the trailing period, which means each remaining share owns more of the land bank and more of the eventual recovery. Net orders held up better than deliveries, down only 4% to 3,317 homes, the cancellation rate improved to 12% from 16%, and community count rose 9%, all signals that demand is steadier than the revenue decline implies. A builder trading below its asset and earnings value, retiring shares, with stabilizing orders and a growing community footprint, is positioned for the part of the cycle where margins recover.
Bear Case
The competitive reality is that KB Home is a mid-sized builder fighting larger, better-capitalized rivals for the same affordability-constrained buyer. Lennar and PulteGroup operate at far greater scale, with more land, more buying power on materials, and deeper capacity to subsidize mortgage rates to move homes, the exact lever that determines who sells in a high-rate market. When the largest builders use rate buydowns and incentives to defend volume, smaller builders like KB Home either match them and sacrifice margin or hold price and sacrifice volume. The second quarter shows which is happening: housing gross margin compressed to 15.2% from 19.3%, driven by lower pricing, higher relative land costs, and weaker operating leverage. That is the margin cost of competing for a shrinking pool of qualified buyers.
The demand backdrop is the second pressure, and it is not in the company's control. KB Home's own filing warns that "more volatile interest rates, which may negatively impact housing affordability and the confidence of potential homebuyers" could adversely affect demand for its homes, and that inflation may raise its financing costs. Its buyers are the most rate-sensitive in the market, the entry-level and first-move-up cohort for whom a one-point move in mortgage rates changes what they can afford. The second-quarter revenue decline of 27% and the drop in deliveries to 2,395 homes show how quickly that sensitivity flows through when affordability tightens.
What keeps this from being a deeper bear case is that the price already reflects much of it. The methods support the price rather than scream overvaluation, so the bear argument is not that the stock is expensive; it is that the value can stay trapped. A builder priced below its asset value can stay there for years if margins keep compressing and the housing cycle does not turn, and the catalysts to break the value loose, lower rates, recovering affordability, margin stabilization, are largely macro forces KB Home cannot manufacture. The risk is not a collapse; it is a slow grind where the asset value is real but the market keeps discounting it until the cycle cooperates.
Valuation
This is a value setup, which is unusual enough to lead with. Every family of valuation method, asset value, earnings power, peer multiples, and forward growth, lands at or above the current price. The price is not betting on growth; it is sitting below what the homebuilding assets and current earnings would support, which is the signature of an out-of-favor cyclical rather than a premium compounder. The implied operating growth embedded in the price is modest, around 6% a year, well within what a builder can deliver across a normal cycle.
The reason the value can look cheap and stay cheap is the margin cycle. A homebuilder's earnings swing with gross margin, and KB Home's just fell more than four points to 15.2%. Capitalize that depressed margin and the business still looks worth more than the price; but the market is discounting the risk that margins compress further before they recover. The asset-value methods, anchored to the land and inventory on the balance sheet, are the most relevant here, and they place the business above the price, which says the market is valuing KB Home below the worth of what it owns. That is the value case and the value trap in the same sentence: the asset value is real, but realizing it depends on a housing cycle the company does not control.
On the balance sheet, the homebuilding model is capital-intensive but self-liquidating, since contracts run a year or less and inventory converts to cash as homes deliver. The trailing operating income near $300 million funds the buyback that is shrinking the share count. The genuine risk in the valuation is not financial distress; it is duration, how long the value stays unrealized while affordability pressure and larger competitors keep margins under pressure. The price is cheap against the assets; the question is what catalyst closes the gap.
Catalysts
The second quarter was a clear step down. KB Home reported revenue of $1.11 billion, down 27%, with diluted EPS of $0.43 against $1.50 a year earlier and net income of $27.3 million. Deliveries fell 23% to 2,395 homes at an average selling price of $461,900, down from $488,700, and housing gross margin compressed to 15.2% from 19.3% on lower pricing, higher relative land costs, and weaker operating leverage.
The forward signals were more constructive than the headline. Net orders fell only 4% to 3,317 homes, the cancellation rate improved to 12% from 16%, and community count rose 9%. Management guided third-quarter deliveries to 2,600 to 2,800 homes and full-year deliveries to 10,500 to 11,000, with housing revenue of $4.90 to $5.30 billion and gross margins modestly above current levels, and emphasized a return to the built-to-order model for steadier deliveries and improving back-half margins. The variables to track are mortgage rates and affordability, which drive demand for KB Home's rate-sensitive buyer, and whether gross margin stabilizes as guided.
Peer Cohorts (Per Segment, With Filing Citations)
West Coast (homebuilding) / Central (homebuilding) (reported)
- DHI (D.R. Horton, Inc.)
- (no filing in the citation store)
- LEN (LENNAR CORP /NEW/)
- (no filing in the citation store)
- PHM (PULTEGROUP, INC.)
- (no filing in the citation store)
- TOL (Toll Brothers, Inc.)
- (no filing in the citation store)
- NVR (NVR, Inc.)
- (no filing in the citation store)
- TMHC (Taylor Morrison Home Corp)
- (no filing in the citation store)
- TPH (Tri Pointe Homes, Inc.)
- (no filing in the citation store)
- MHO (M/I HOMES, INC.)
- (no filing in the citation store)
Financial services (reported)
- RKT (Rocket Companies, Inc.)
- (no filing in the citation store)
- UWMC (UWM HOLDINGS CORPORATION)
- (no filing in the citation store)
- PFSI (PennyMac Financial Services, Inc.)
- (no filing in the citation store)
- WD (Walker & Dunlop, Inc.)
- (no filing in the citation store)
Methodology Note
- Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
- Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
- Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
- Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.
Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.
Sources
Q2 2026 earnings release · Q2 2026 guidance · Q2 2026 earnings call