What Happened?
Shares of homebuilder KB Home (NYSE:KBH) fell 9.6% in the after-market session after the company reported weak first-quarter 2025 results, which missed Wall Street's expectations for the key metrics we track, including sales, operating profits, and earnings. The company further dampened investor sentiment by lowering its full-year revenue guidance, as its backlog fell short of consensus estimates, an indication of a weaker-than-expected volume of unfulfilled orders.
The most notable concern in the quarter was a 17% drop in net orders, signaling continued buyer hesitation amid ongoing affordability challenges and broader economic uncertainty.
That weakness weighed heavily on sales, which declined 5% from the previous year. Though the average selling price rose 4%, this wasn't enough to offset a 9% drop in homes delivered.
Margins also moved in the wrong direction. Housing gross profit margin declined modestly and combined with the weak top line growth to drive a significant decline in earnings.
On a more positive note, management noted that sales activity began to stabilize toward the end of the quarter.
Overall, this was a weak quarter marked by declining growth and disappointing guidance.
The shares closed the day at $58.64, down 5.1% from previous close.
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What The Market Is Telling Us
KB Home’s shares are not very volatile and have only had 5 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 2 months ago when the stock gained 14% on the news that the company reported strong fourth-quarter results that exceeded analysts' backlog expectations, as this figure is a leading indicator of revenue and a major focus of the markets. Its revenue also narrowly outperformed Wall Street's estimates.
Management made constructive comments about the macro, noting that "Net orders rose roughly 40% year over year, as buyers continued to demonstrate a desire for homeownership and housing market conditions improved relative to last year".
On the other hand, its EBITDA missed and its full-year revenue guidance fell slightly short of Wall Street's estimates.
Zooming out, we think this was a mixed quarter. The market seemed to focus on the top-line strength, and the stock traded up.
KB Home is down 9.4% since the beginning of the year, and at $58.57 per share, it is trading 34.7% below its 52-week high of $89.63 from September 2024. Investors who bought $1,000 worth of KB Home’s shares 5 years ago would now be looking at an investment worth $3,008.
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