NEW YORK (TheStreet) -- Shares of KB Home (KBH) - Get Report are down by 5.04% to $13 in midday trading on Thursday, as home builder stocks tumble due to the unexpected decline in pending U.S. home sales.
Contract signings to acquire previously owned homes slipped in September by the most since the end of 2013, Bloomberg reports. That signals that the residential real estate market's recent rise is slowing.
KB Home is a Los Angeles-based home building company that constructs and sells homes in some parts of the U.S. The company is made up of four home building segments and one financial services segment.
Pending home sales fell by 2.3% in September, following a 1.4% decline for August, according to the National Association of Realtors. Analysts surveyed by Bloomberg were expecting a 1% decline.
Separately, TheStreet Ratings team rates KB HOME as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:
We rate KB HOME (KBH) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, notable return on equity and attractive valuation levels. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, generally higher debt management risk and poor profit margins.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth greatly exceeded the industry average of 10.0%. Since the same quarter one year prior, revenues rose by 43.1%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Household Durables industry and the overall market, KB HOME's return on equity significantly exceeds that of both the industry average and the S&P 500.
- The company, on the basis of change in net income from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Household Durables industry average. The net income has decreased by 18.0% when compared to the same quarter one year ago, dropping from $28.36 million to $23.25 million.
- Currently the debt-to-equity ratio of 1.60 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated.
- You can view the full analysis from the report here: KBH