KB Home (KBH)

Homebuilder KB Home (NYSE:KBH) missed Wall Street’s revenue expectations in Q1 CY2026, with sales falling 22.6% year on year to $1.08 billion. Its GAAP profit of $0.52 per share was 4.5% below analysts’ consensus estimates.

Company Overview

The first homebuilder to be listed on the NYSE, KB Home (NYSE:KBH) is a homebuilding company targeting the first-time home buyer and move-up buyer markets.

Traditionally, homebuilders have built competitive advantages with economies of scale that lead to advantaged purchasing and brand recognition among consumers. Aesthetic trends have always been important in the space, but more recently, energy efficiency and conservation are driving innovation. However, these companies are still at the whim of the macro, specifically interest rates that heavily impact new and existing home sales. In fact, homebuilders are one of the most cyclical subsectors within industrials.

Competitors of KB Home include D.R. Horton (NYSE:DHI), Lennar (NYSE:LEN), and PulteGroup (NYSE:PHM).

A company’s long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, KB Home grew its sales at a mediocre 6.9% compounded annual growth rate. This was below our standard for the industrials sector and is a tough starting point for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. KB Home’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 4.5% annually.

KB Home also reports its backlog, or the value of its outstanding orders that have not yet been executed or delivered. KB Home’s backlog reached $1.70 billion in the latest quarter and averaged 28% year-on-year declines over the last two years. Because this number is lower than its revenue growth, we can see the company hasn’t secured enough new orders to maintain its growth rate in the future.

This quarter, KB Home missed Wall Street’s estimates and reported a rather uninspiring 22.6% year-on-year revenue decline, generating $1.08 billion of revenue.

Looking ahead, sell-side analysts expect revenue to decline by 6.8% over the next 12 months, a slight deceleration versus the last two years. This projection is underwhelming and suggests its products and services will face some demand challenges.

All else equal, we prefer higher gross margins because they make it easier to generate more operating profits and indicate that a company commands pricing power by offering more differentiated products.

KB Home has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 22% gross margin over the last five years. Said differently, KB Home had to pay a chunky $77.99 to its suppliers for every $100 in revenue.

KB Home’s gross profit margin came in at 15.7% this quarter, down 5 percentage points year on year. KB Home’s full-year margin has also been trending down over the past 12 months, decreasing by 2.8 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs (such as raw materials and manufacturing expenses).

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

KB Home has managed its cost base well over the last five years. It demonstrated solid profitability for an industrials business, producing an average operating margin of 11.5%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Analyzing the trend in its profitability, KB Home’s operating margin decreased by 5 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q1, KB Home generated an operating margin profit margin of 3.1%, down 6.3 percentage points year on year. Since KB Home’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

KB Home’s decent 8.2% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

KB Home’s two-year annual EPS declines of 16% were bad and lower than its two-year revenue losses.

We can take a deeper look into KB Home’s earnings to better understand the drivers of its performance. KB Home’s operating margin has declined over the last two years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q1, KB Home reported EPS of $0.52, down from $1.50 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects KB Home’s full-year EPS of $5.22 to shrink by 15.8%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

KB Home has shown mediocre cash profitability relative to peers over the last five years, giving the company fewer opportunities to return capital to shareholders. Its free cash flow margin averaged 5.8%, below what we’d expect for an industrials business.

Taking a step back, an encouraging sign is that KB Home’s margin expanded by 12.8 percentage points during that time. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability fell.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

KB Home’s management team makes decent investment decisions and generates value for shareholders. Its five-year average ROIC was 11.3%, slightly better than typical industrials business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, KB Home’s ROIC has decreased over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

KB Home reported $200.5 million of cash and $1.89 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $467.4 million of EBITDA over the last 12 months, we view KB Home’s 3.6× net-debt-to-EBITDA ratio as safe. We also see its $4.03 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We struggled to find many positives in these results. Its EBITDA missed and its EPS fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock traded down 6.8% to $49.38 immediately after reporting.

Updated: March 24, 2026 at 11:21 PM EDT

Before investing in or passing on KB Home, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

KB Home falls short of our quality standards. To kick things off, its revenue growth was mediocre over the last five years, and analysts expect its demand to deteriorate over the next 12 months. While its rising cash profitability gives it more optionality, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its projected EPS for the next year is lacking.

KB Home’s P/E ratio based on the next 12 months is 12x. While this valuation is fair, the upside isn’t great compared to the potential downside. There are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $62.62 on the company (compared to the current share price of $50.89).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.