KB Home (KBH, Financial) has entered the new fiscal 2015 on a strong note, delivering solid growth across its key metrics, topping consensus estimates. KB Home now looks confident for a better performance in future as it sees many positive signs ahead. With an expanded community count and healthy buyer demand, KB Home is geared up for better performance throughout 2015. With some growth focused strategies such as expansion, KB Home is expecting to produce sequential margin improvement in upcoming quarters. Let us have a detailed look at the overall housing industry and long term prospects for KB Home.
A closer look at the performance
KB Home’s quarterly revenue increased by 29% to $580 million. This happened as the company sold more homes at higher prices in 2014. The company’s shares also soared soon after the company reported solid results. The shares nearly jumped 10% and it is expected to climb even higher in the upcoming quarters. Moving forward, company’s housing revenue also grew by 19% on a year-over-year basis. This happened mainly as a result of a solid 10% growth in the number of homes delivered.
Also, the average selling increased 8%, which also contributed to a solid growth in the housing revenue. The company is optimistic about good growth in the financials in 2015 as it has achieved some impressive numbers in the past. It is pleased with a 24% growth in the net orders with a 22% growth in the average community count.
Strong prospects
With solid results KB Home is definitely a stock of your interest. In fact the prospects of the company also appears concrete. Its revenue is expected to grow as the company had already secured a solid 30% growth in the backlogs which is in fact the highest growth in the backlogs since 2008. For 2015, KB Home will be majorly focusing on three strategic initiatives such as increasing community count, expanding revenue per community and enhancing profitability per unit.
In addition, KB Home is also taking necessary steps to that will help it to grow the selling prices in most of the markets. On the other hand, It is also concerned about keep a low cost structure and to be more accurate in this, KB Home is measuring its progress on a weekly basis.
Moving ahead, KB Home is seeing many upside opportunities for 2015 and 2016. Considering the opportunity, the company will be selling lands or lots from time to time to fetch the most profitable opportunity. Furthermore, KB Home key growth driver has been its communities. It has opened around 41 communities in the past which are producing good cash. Considering this growth, the company working on improving the returns by opening more communities. The company has plans to reinvest this cash, generated from the communities in some key growth areas.
Positive growth trends
The recovery in the housing segment is gaining good traction and the recovery in the U.S economy is further a solid catalyst. It is expected to benefit the employment sector much in future, generating many new jobs. This will boost the customer buying confidence, leading to significant growth in demand for new homes. In addition, the interest and mortgage rates are still favourable which might rise in future but as of now they are also positive for a solid growth in the housing industry.
The stock is dirt cheap with a trailing P/E of 1.66 while the forward P/E of 11.44 indicates solid earnings growth in the near future. With a terrific profit margin of 36.18%, the stock can further gain market share, reaching new highs in future and can be solid long term holding as well. Considering all these facts, KB Home is surely a good pick.
