What a brutal six months it’s been for KB Home. The stock has dropped 33.3% and now trades at a new 52-week low of $57.16, rattling many shareholders. This was partly due to its softer quarterly results and may have investors wondering how to approach the situation.

Is now the time to buy KB Home, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

Even with the cheaper entry price, we don't have much confidence in KB Home. Here are three reasons why you should be careful with KBH and a stock we'd rather own.

Why Do We Think KB Home Will Underperform?

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

1. Backlog Declines as Orders Drop

Investors interested in Home Builders companies should track backlog in addition to reported revenue. This metric shows the value of outstanding orders that have not yet been executed or delivered, giving visibility into KB Home’s future revenue streams.

KB Home’s backlog came in at $2.20 billion in the latest quarter, and it averaged 22.9% year-on-year declines over the last two years. This performance was underwhelming and shows the company is not winning new orders. It also suggests there may be increasing competition or market saturation.

2. Revenue Projections Show Stormy Skies Ahead

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect KB Home’s revenue to drop by 3.7%, a decrease from its flat sales for the past two years. This projection is underwhelming and indicates its products and services will see some demand headwinds.

3. EPS Took a Dip Over the Last Two Years

While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.

Sadly for KB Home, its EPS declined by 5.5% annually over the last two years while its revenue was flat. This tells us the company struggled to adjust to choppy demand.

Final Judgment

KB Home falls short of our quality standards. After the recent drawdown, the stock trades at 7.1× forward price-to-earnings (or $57.16 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better stocks to buy right now. Let us point you toward the most entrenched endpoint security platform on the market.

Stocks We Would Buy Instead of KB Home

With rates dropping, inflation stabilizing, and the elections in the rearview mirror, all signs point to the start of a new bull run - and we’re laser-focused on finding the best stocks for this upcoming cycle.

Put yourself in the driver’s seat by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.