KB Home (KBH), Toll Brothers Inc (TOL): This Is Your Window of Opportunity!

KB Home is an attractive pick

KB Home (NYSE:KBH) is apparently the smallest player in the housing industry and believe it or not, this is what induces me to place a bet on the stock. The stock has given a total return of 130.5% over the last year which is more than double its peers. Even though the company has not been able to generate positive EPS, it has been successful in creating value for its shareholders via notable capital appreciation.

Management of the company has planned a sequential increase in community count over the remaining quarters of 2013. The average community count declined in the first quarter of 2013 by 11% however, as a result of the housing recovery, absorption rates touched a new high of 56% to 9.7 net orders per community. Increasing community count on a sequential basis will be beneficial because it will allow the company to meet excessive demand during say, the spring season sale, and also spare it from unnecessary inventory.

The bottom line

Something that really becomes a challenge for major companies during periods of high demand is proper cost management because high demand leads to higher production as well as higher indirect expenses to support production. KB Home (NYSE:KBH) has done a phenomenal job on this front as its incremental SG&A expense per dollar of extra revenue stood at approximately $0.053.

KB Home might not be the biggest player in the housing industry; however, in terms of shareholder value creation it definitely scores high and it will make sense to have this stock in your portfolio.

The article This Is Your Window of Opportunity! originally appeared on Fool.com and is written by Mihir Mehta.

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