KBH or DHI: Which Is the Better Value Stock Right Now?
Investors interested in stocks from the Building Products - Home Builders sector have probably already heard of 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.
There are plenty of strategies for discovering value stocks, but we have found that pairing a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system produces the best returns. The proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Currently, KB Home has a Zacks Rank of #2 (Buy), while D.R. Horton has a Zacks Rank of #4 (Sell). Investors should feel comfortable knowing that KBH likely has seen a stronger improvement to its earnings outlook than DHI has recently. But this is only part of the picture for value investors.
Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether a company is undervalued at its current share price levels.
The Value category of the Style Scores system identifies undervalued companies by looking at a number of key metrics. These include the long-favored P/E ratio, P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that help us determine a company's fair value.
KBH currently has a forward P/E ratio of 10.01, while DHI has a forward P/E of 12.55. We also note that KBH has a PEG ratio of 0.72. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. DHI currently has a PEG ratio of 0.81.
Another notable valuation metric for KBH is its P/B ratio of 1.55. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. By comparison, DHI has a P/B of 2.49.
These are just a few of the metrics contributing to KBH's Value grade of A and DHI's Value grade of C.
KBH is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that KBH is likely the superior value option right now.
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KB Home (KBH) : Free Stock Analysis Report
D.R. Horton, Inc. (DHI) : Free Stock Analysis Report