Investors with an interest in Building Products - Home Builders stocks have likely encountered both KB Home (KBH) and D.R. Horton (DHI). But which of these two stocks is more attractive to value investors? We'll need to take a closer look to find out.
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 favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Right now, KB Home is sporting a Zacks Rank of #1 (Strong Buy), while D.R. Horton has a Zacks Rank of #2 (Buy). The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that KBH has an improving earnings outlook. However, value investors will care about much more than just this.
Value investors also tend to look at a number of traditional, tried-and-true figures to help them find stocks that they believe are undervalued at their current share price levels.
Our Value category grades stocks based on a number of key metrics, including the tried-and-true P/E ratio, the P/S ratio, earnings yield, and cash flow per share, as well as a variety of other fundamentals that value investors frequently use.
KBH currently has a forward P/E ratio of 9.73, while DHI has a forward P/E of 11.11. We also note that KBH has a PEG ratio of 0.89. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. DHI currently has a PEG ratio of 0.97.
Another notable valuation metric for KBH is its P/B ratio of 1.34. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, DHI has a P/B of 2.04.
Based on these metrics and many more, KBH holds a Value grade of A, while DHI has a Value grade of C.
KBH sticks out from DHI in both our Zacks Rank and Style Scores models, so value investors will likely feel that KBH is the better option right now.