$14.91
-0.23 (-1.52%)
KB Home (KBH)
CAPS Rating:
Homebuilder with domestic operations in the following regions: West Coast, Southwest, Central and Southeast. Also provides mortgage banking services to the majority of its domestic homebuyers through its wholly-owned subsidiary, KB Home Mortgage Company.
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KB Homes earnings showed improvement year over year and quarter over quarter.... KB Homes is stealing marketshare and sales from bankrupt private builders... they will be one of the survivors.... public builders control only 20% of total homebuilding... KB Homes national market share is probably 1-2%..... you can't generate growth from that when all your competitors are going bankrupt?
KBH may continue to gain market share as private builders go bankrupt, but building market share in an industry that is selling product below COGS is a losing strategy. I have to believe that KBH is only building to remain current on its debts at this point and is selling property at values below that of its corresponding debts like so many other builders. If KBH can hang on for a coulple more years until profit margins return to positive territory they will benefit from the diluted competition in the homebuilding market and prosper. Whether they, or other public homebuilders, have what it takes to survive the next couple years of famine is what is in question. I'm afraid, in time, this dilemma for KBH will come down to a negotiation between banks and bond holders...equity will eventually be wiped out. I'm selling now.
Actually, KBH is selling above its COGS so I am going to assume you don't have an Accounting background. What I believe you mean to say is that they are selling below their SG&A which generates the loss you are referring to and over time this is unsustainable.
Would you propose that all companies stop producing product when things are tough economically? At the end of the day EVERY company continues to produce because they need revenue generation. Without revenue generation you have nothing. The strategy then becomes how do you generate cashflow. Most people/investors focus on balance sheets and income statements, but people who really are at the top of their game in investing or finance focus on cashflows.... nothing else really matters except cashflow generation.
After valuing and reviewing close to 50 of the top 100 homebuilders, KBH's balance sheet and cashflow statement is in the top 10%... then take into consideration that 50% of the top 100 homebuilders will go bankrupt since I am tracking them and that is what I do for a living, value homebuilders in distress. So the odds of equity holders getting nothing are a black swan event where the entire country goes to 35% unemployment and everything is broken. In that scenario, wouldn't any investment you had be worthless?
Since i'm privy to much of the information that the investing public isn't aware of, I can say with confidence that shorting KBH is a losing strategy. There are better short opportunities in homebuilding and within the 8,500 plus common stock universe.
Good luck, and be sure to check back in a year from now to see who is right on this topic
You are correct about the accounting. It looks like I was looking at the last complete fiscal year numbers, Nov '08, when their revenues were less than cost of sales. They reported a negative gross margin, which led me to believe that they were selling below COGS. This was a mistake on my part, because they were building more homes in this period than they were selling. Their cost of sales were greater than revenues at the consolidated level, but not on individual properties. Either way this is not an enviable position for a company to be in. The last few quarters seem to be a bit more encouraging, as it appears the company has done a good job of reducing overhead in tough times. In a year's time you may very well be right, assuming the SEC investigation doesn't unearth a "black swan." Good luck!