KB Home (KBH): 5 Reasons To Send This Stock Home

The simple fact is, based on P/E ratio, KB Home is the most expensive stock of its peer group. The second most expensive stock based on P/E is Toll Brothers at about 39 times earnings. The huge difference between Toll Brothers and KB Home is one (KB Home) is expected to grow by 4%, Toll Brothers is expected to grow by more than 62%. Looking at PulteGroup’s forward P/E of about 14, and Lennar’s P/E of about 19, these stocks seem very cheap compared to KB Home’s seemingly crazy valuation.

Nothing Good Comes Of This

When you look at KB Home’s performance, you can see investors have good reason to worry. What is the one thing that investors in an over-leveraged company should worry more about? One final problem with KB Home is, the company is forming a mortgage banking company with its preferred mortgage company Nationstar Mortgage.

I’m not sure what KB Home’s management is thinking. Why would a company that is struggling with its core business decide to enter a volatile business like mortgage banking? An overvalued stock, poor growth, high interest costs, and a challenging new venture would seem to spell trouble for investors. Given that all of KB Home’s competition offer better values, and more stable businesses, I have one suggestion for KB Home shareholders. You need to pack this stock up and send it home. This house doesn’t stand a chance of standing.

Chad Henage has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

The article 5 Reasons To Send This Stock Home originally appeared on Fool.com and is written by Chad Henage.

Chad is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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