Back to top

Image: Bigstock

KBH vs. DHI: Which Stock Should Value Investors Buy Now?

Read MoreHide Full Article

Investors interested in Building Products - Home Builders stocks are likely familiar with KB Home (KBH) and D.R. Horton (DHI). But which of these two stocks offers value investors a better bang for their buck right now? We'll need to take a closer look.

Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. The Zacks Rank is a proven strategy that targets companies with positive earnings estimate revision trends, while our Style Scores work to grade companies based on specific traits.

Both KB Home and D.R. Horton have a Zacks Rank of # 2 (Buy) right now. Investors should feel comfortable knowing that both of these stocks have an improving earnings outlook since the Zacks Rank favors companies that have witnessed positive analyst estimate revisions. But this is only part of the picture for value investors.

Value investors are also interested in a number of tried-and-true valuation metrics that help show when a company is undervalued at its current share price levels.

The Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.

KBH currently has a forward P/E ratio of 10.73, while DHI has a forward P/E of 11.68. We also note that KBH has a PEG ratio of 0.99. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. DHI currently has a PEG ratio of 1.02.

Another notable valuation metric for KBH is its P/B ratio of 1.46. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. For comparison, DHI has a P/B of 2.15.

These metrics, and several others, help KBH earn a Value grade of A, while DHI has been given a Value grade of C.

Both KBH and DHI are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that KBH is the superior value option right now.

Published in