Should Investors Build KB Home Stock Into Portfolios?

This homebuilder stock is up 244% in the last 12 months

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Homebuilder giant KB Home (NYSE:KBH) will step into the earnings confessional after the market closes on Wednesday, March 24. KBH has beat earnings expectations on all four of its most recent quarterly earnings reports, and analysts anticipate that KB Homes will report an earnings per share (EPS) of $0.92 on March 24. However, a closer look at the post-earning numbers tells a different story.

KBH scored only one positive post-earnings move in 2020, and that was a 2.5% pop back in January. Overall, the stock averages a post-earnings move of 5.3% over the last eight quarters, regardless of direction. 

KB Home stock is fresh off tagging a 14-year high of $47.37 yesterday, March 17. The shares are up 244% year-over-year, with their 50-day moving average emerging as support in 2021. Despite the positive price action, it should be noted that its relative strength index (RSI) of 68 sits on the cusp of "overbought" territory, indicating that a short-term drop may have already been in the cards. 

KBH Stock Chart

Meanwhile, even with earnings on the horizon, the stock's short-term options are attractively priced. Specifically, the equity's Schaeffer's Volatility Index (SVI) of 49% is in just the 5th percentile of its annual range, suggesting near-term options are pricing in relatively low volatility expectations for KBH. And the good news for options buyers: the stock hasn't had a problem making big moves, per its Schaeffer's Volatility Scorecard (SVS) that sits at a lofty 87 out of 100, suggesting KBH has consistently exceeded the volatility expectations priced into its options over the past year.

Fundamentally, the company has some promising figures. KB Home stock trades at a price-earning ratio of 15.12. Additionally, KBH has a forward price-earnings ratio of 8.60, which would undoubtedly make the company undervalued should it accomplish its expectations.

Nonetheless, KB Home seems likely to continue growing its quarterly earnings, taking its recent net income growth into account. Between fiscal 2018 and fiscal 2020 KBH increased its net income by roughly $126 million, bringing its total net profits up to $296 million. The company even added $28 million in net income during a year plagued by the COVID-19 pandemic. However, KB Home did see its revenues decrease by $400 million in fiscal 2020. The company also has $1.79 billion in total debt and just a fraction of that amount in cash, but KB Home stock seems to be a solid long-term investment overall. It doesn't hurt, either that KB Home stock offers a 1.33% dividend yield.

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