Breaking Down KB Home (KBH) Financial Health: Key Insights for Investors

You're looking at KB Home (KBH) right now, trying to reconcile a solid third quarter with a housing market that still feels wobbly, and honestly, the numbers tell a nuanced story. While the company posted a strong Q3 2025, delivering diluted earnings per share (EPS) of $1.61-beating the consensus estimate of $1.50-the full-year outlook is where the rubber meets the road. Management has guided for fiscal year 2025 housing revenues to land between $6.1 billion and $6.2 billion, reflecting a cautious but realistic view of buyer demand, especially with the Average Selling Price (ASP) hovering around $483,000. This isn't a story of runaway growth; it's about tactical execution, like the strategic shift to a built-to-order model that yields a 250 to 500 basis points higher gross margin, plus they've been busy returning capital, repurchasing approximately $440 million in shares year-to-date. The key question is whether their operational improvements-like reducing build times-can offset the pressure on their gross profit margin, which is forecast to be between 19.2% and 19.3% for the full year. It's a tight game of inches.

Revenue Analysis

You need to know where KB Home (KBH) makes its money, and the answer is overwhelmingly clear: it's the homes. The company's revenue streams are highly concentrated, which is typical for a pure-play homebuilder, but it also means you're exposed to the cyclicality of a single market.

The primary revenue source is Home Building, which accounted for approximately 99.60% of total annual revenue as of the last reported breakdown. The remaining sliver, about 0.40%, comes from its Financial Service segment, which primarily facilitates mortgage financing for its home buyers. That's a defintely simple model: sell houses, and help finance them.

Here's the quick math on the near-term picture: KB Home has been navigating a challenging interest rate environment, which has directly impacted its top line. For the nine months ended August 31, 2025, total revenues were $4.54 billion, a decline of roughly 7.9% compared to the same period in the prior year. The third quarter of 2025 (Q3) saw total revenue of $1.62 billion, an approximate 7.5% year-over-year decrease. The company has had to adjust its full-year guidance several times.

This revenue contraction is tied to fewer homes being delivered, even as the average selling price (ASP) has held relatively steady, declining only slightly to $475,700 in Q3 2025. The latest full fiscal year 2025 guidance for housing revenues is now projected to be between $6.10 billion and $6.20 billion. This is a significant downward revision from the initial guidance given earlier in the year, reflecting the market's pressure on net orders and backlog. Exploring KB Home (KBH) Investor Profile: Who's Buying and Why?

The contribution of the two main business segments breaks down like this:

• Home Building: Generates the vast majority of revenue from the sale of new homes.
• Financial Service: Provides mortgage banking and title services, a small but necessary part of the ecosystem, though its pretax income has been reduced due to lower loan originations.

A key change in the revenue strategy is the renewed focus on the built-to-order (BTO) model. Management is actively steering the business back toward an historical mix of nearly 70% BTO homes, up from around 50% recently. This shift is crucial because BTO homes currently generate a gross margin that is 250 to 500 basis points higher than inventory homes. This won't boost the amount of revenue, but it will improve the quality and profitability of each dollar of revenue, which is what matters most in a tight market.

Geographically, revenue is concentrated in four main regions, which shows where the risk and opportunity lie:

If the California housing market sneezes, KB Home catches a cold. That West Coast exposure is the biggest single driver.

Profitability Metrics

You need to know the bottom line, so here it is: KB Home (KBH) is navigating a challenging 2025, with their revised guidance showing profitability margins that are defintely contracting year-over-year. The company is sacrificing margin for volume, a common trade-off when affordability is the biggest headwind.

For the full fiscal year 2025, KB Home projects its adjusted Housing Gross Profit Margin to land between 19.2% and 19.3%. This is a clear step down from the prior year's performance, driven by the dual pressures of higher relative land costs and increased homebuyer concessions (like paying down mortgage rates) to spur demand. That's the cost of doing business in a high-interest-rate environment.

This margin compression flows directly to the operating line. The Homebuilding Operating Income Margin is expected to be approximately 8.9% of revenue for the full year 2025. Here's the quick math: with the Selling, General, and Administrative (SG&A) expense ratio projected between 10.2% and 10.3%, you see the squeeze. Gross Margin minus SG&A gives you the Operating Margin, and the narrow gap shows little room for error.

Operational efficiency is a mixed bag, to be fair. While the SG&A ratio has stayed relatively contained, the drop in the gross margin suggests that cost management on the direct construction and land side hasn't fully offset the need for pricing adjustments. Their focus on reducing build times, which improved to 147 days company-wide in Q1 2025, is a positive countermeasure, but it hasn't completely stopped the margin decline. You can read more about their strategic focus in their Mission Statement, Vision, & Core Values of KB Home (KBH).

When we look at the final measure of success, the Net Profit Margin, the nine-month year-to-date (YTD) figure for FY2025 shows Net Income of $327.3 million on Revenues of $4.54 billion, translating to a Net Profit Margin of about 7.21%. This is the ultimate takeaway for investors: what percentage of every dollar of revenue actually makes it to the bottom line.

The real question for investors is how KB Home stacks up against its peers. The homebuilding industry, based on the 2025 edition of the NAHB's Cost of Doing Business Study (using 2023 data), had significantly stronger average margins, reflecting the peak of the housing boom. KB Home's current guidance places it below these recent industry benchmarks:

• KB Home's FY2025 Gross Margin Guidance (approx. 19.3%) is below the industry average of 20.7%.
• KB Home's FY2025 Net Profit Margin (YTD 7.21%) is below the industry average of 8.7%.

This comparison shows that while KB Home remains profitable, it is operating in the lower quartile compared to the average builder's performance during the last major upswing. The near-term risk is clear: if the market demands further concessions, the operating margin could dip below the 8.9% guidance, putting significant pressure on net income. Your action item is to watch the Q4 results for any signs of margin stabilization, specifically looking for the SG&A ratio to come in at the low end of their 10.2% to 10.3% range.

Debt vs. Equity Structure

KB Home (KBH) maintains a conservative and well-managed financial structure, leaning heavily on equity to fund its capital-intensive land acquisition strategy. As of the third quarter of fiscal year 2025 (ending August 31, 2025), the company's Debt-to-Equity (D/E) ratio stood at a healthy 0.50, a figure that is defintely on the lower end for a major homebuilder and signals a lower financial risk profile.

For a business that requires significant upfront capital for land and development, like homebuilding, managing debt is crucial, especially in a higher interest rate environment. KB Home's strategy has been to use debt for flexibility and growth, but to keep it well-contained relative to its shareholder equity (the book value of the company).

Overview of Debt Levels (FY 2025)

The company's total debt, or notes payable, was approximately $1.94 billion as of August 31, 2025, which is an increase from the prior year, primarily reflecting the use of its revolving credit facility for land investment. Here's the quick math on their debt composition from the third quarter:

What this estimate hides is the inherent volatility of the short-term debt, which often fluctuates as they draw on their credit facility to fund land purchases and then pay it down with cash flow from home closings. Their goal is to have no outstanding cash borrowings by year-end, which shows a commitment to short-term de-leveraging.

Debt-to-Equity Ratio and Industry Comparison

The Debt-to-Equity ratio is the key metric here, showing how much debt a company uses to finance its assets relative to the value provided by shareholders. A D/E ratio of 0.50 means KB Home has 50 cents of debt for every dollar of equity. This is a very strong position.

• KB Home's D/E (Q3 2025): 0.50
• Homebuilding Industry Average D/E: 0.38
• General Construction Industry Healthy Range: 0.5-1.5

While KB Home's D/E of 0.50 is slightly above the narrowest homebuilding average of 0.38, it sits comfortably within the healthy range for capital-intensive construction businesses, which can safely carry a D/E up to 1.5. It's a good sign they are using debt to fuel growth without overextending the balance sheet.

Recent Financing and Equity Management

KB Home recently took clear actions to enhance its financial flexibility and liquidity. This is a smart move to prepare for any market shifts or to capitalize on new land opportunities.

• Refinancing: In November 2025, KB Home successfully refinanced and expanded its revolving credit facility to up to US$1.7 billion.
• Term Loan: They also extended the maturity of their US$360.0 million senior unsecured term loan, pushing out the repayment date and reducing near-term refinancing risk.
• Capital Allocation: The company targets a debt-to-capital ratio around 30% to maintain a favorable credit rating.

On the equity side, KB Home is aggressively managing its share count, which is a direct way to boost earnings per share (EPS) and Return on Equity (ROE). In the first nine months of fiscal 2025, they repurchased approximately 7.8 million shares at a total cost of $438.5 million. This dual focus-securing flexible debt for land investment and reducing equity through buybacks-shows a clear, shareholder-friendly capital allocation strategy. You can see how this strategy aligns with their broader goals in their Mission Statement, Vision, & Core Values of KB Home (KBH).

Liquidity and Solvency

You need to know if KB Home (KBH) can cover its near-term obligations, and the answer is a resounding yes. The company's liquidity position as of the trailing twelve months (TTM) ended August 2025 is defintely strong, driven by a massive land inventory that underpins its balance sheet.

The key ratios tell the story immediately. KB Home's Current Ratio sits at an exceptional 17.90 for the TTM ended August 2025. This means the company has nearly $18 in current assets (cash, receivables, inventory) for every $1 in current liabilities. For a homebuilder, a high ratio is common because their primary current asset is land inventory, but this level is still a major strength.

To be fair, a lot of that is tied up in land, which isn't cash. That's why we look at the Quick Ratio (Acid-Test Ratio), which strips out inventory. Even without that land, the Quick Ratio is a very healthy 1.96. A ratio above 1.0 is generally considered excellent, so 1.96 shows they can cover all short-term debt with just their most liquid assets, like cash and receivables. That's a huge buffer.

Here's the quick math on working capital: KB Home's Net Current Asset Value, which is the technical term for working capital, stood at approximately $4.25 billion for the TTM ended August 2025. This huge reserve is mostly due to their substantial investment in land and homes under construction, with inventories totaling roughly $5.84 billion as of August 31, 2025. The trend shows a deliberate strategy to maintain a massive land bank for future growth, but it does mean a large portion of their capital is illiquid until homes are sold.

Looking at the cash flow statement for the TTM ended August 31, 2025, we see a clear picture of capital allocation:

• Operating Cash Flow (OCF): The company generated $394.48 million from its core homebuilding operations. This is the lifeblood of the business, showing solid cash generation from selling homes.
• Investing Cash Flow (ICF): This was a net outflow of -$54.22 million. This is normal for a growth-focused homebuilder, as they are constantly buying and developing land.
• Financing Cash Flow (FCF): This was a net use of cash, with an outflow of approximately -$190.63 million for the nine months ended August 31, 2025. This outflow is primarily due to the company's aggressive capital return program, specifically the $438.5 million used for common stock repurchases during the same nine-month period.

The main strength here is the liquidity cushion combined with the strong OCF. The only potential near-term risk is an industry-wide one: if the housing market slows significantly, the massive $5.84 billion inventory could take longer to convert to cash, which would slow the working capital cycle. Still, with a Current Ratio of 17.90, KB Home is in a very comfortable position to navigate market shifts. You can review their long-term strategy and values here: Mission Statement, Vision, & Core Values of KB Home (KBH).

Next step: Check the company's debt maturity schedule against its cash on hand to ensure no large debt payments are due before the next expected cash flow cycle.

Valuation Analysis

You are looking at KB Home (KBH) and asking the core question: is this stock a bargain or a trap? Based on current multiples, KB Home looks cheap, but a deeper dive into intrinsic value suggests the market might be pricing in real risks. The consensus on Wall Street is a firm Hold right now.

The stock closed recently around $61.66 (as of November 2025), but it has been a tough 12 months, with the price decreasing by over 22.34%. That drop puts it well off its 52-week high of $85.66, though it's still comfortably above the $48.90 low. This volatility reflects the uncertainty in the housing market, which is something we must factor into our models.

Here's the quick math on the key relative valuation metrics:

• Price-to-Earnings (P/E): The trailing twelve months (TTM) P/E ratio is sitting around 8.04. For context, the forward P/E is slightly higher at 10.58. This is a low multiple, suggesting the stock is inexpensive relative to its earnings compared to the broader market.
• Price-to-Book (P/B): The P/B ratio is approximately 1.010. A P/B near 1.0 is a significant marker for homebuilders-it means the market is valuing the company almost exactly at its book value (assets minus liabilities), which is often seen as a floor.
• Enterprise Value-to-EBITDA (EV/EBITDA): This ratio, which accounts for debt, is currently around 7.8x. This is also on the lower side for the sector, pointing toward a potentially undervalued status compared to peers.

Honestly, those low multiples-a P/E of 8.04 and a P/B of roughly 1.0x-make KB Home look like a value play.

But here's the limit of that relative valuation: a Discounted Cash Flow (DCF) analysis, which tries to map the true intrinsic value of the business, paints a different picture. Some models suggest a fair value closer to $45.97, implying the stock is currently 34.1% overvalued. This estimate hides the risk of future margin compression and slower housing starts, which are real near-term headwinds. You need to decide if the market is being too pessimistic on future earnings (making it undervalued) or too optimistic on the current price (making it overvalued).

The Street is split, but the majority leans cautious. The analyst consensus rating is a Hold. Out of 12 to 15 analysts covering the stock, the average 12-month price target is between $64.36 and $65.33. This suggests a modest upside of about 4% to 6% from the current price, but no one is pounding the table for a massive breakout.

On the income side, KB Home is a steady, if unexciting, dividend payer. The annual dividend is $1.00 per share, giving a yield of about 1.6% to 1.73%. The payout ratio is very low at around 13.25% to 14.04%, which is defintely sustainable and gives the company massive flexibility to weather a housing downturn or continue its share buyback program.

To fully understand the context behind these numbers, you should review the company's long-term strategic direction: Mission Statement, Vision, & Core Values of KB Home (KBH).

Your clear action here is to use the low relative multiples (P/E, P/B) as a starting point, but don't ignore the DCF warning. If you believe the housing cycle will turn positive faster than expected, the low multiples offer a margin of safety. If you are worried about interest rates and housing demand, the DCF's fair value of $45.97 is a critical downside risk to consider.

Risk Factors

You're looking at KB Home (KBH), a company that's navigating a housing market that is, defintely, more complex than it was a couple of years ago. The core of their financial health, and your investment thesis, rests on how well they manage clear near-term risks. The good news is they are mapping these risks to concrete actions; the bad news is the external pressures are real and impacting their 2025 numbers.

The biggest external risk is the macroeconomic one: affordability and market volatility. Buyer hesitancy tied to mortgage rate movements has caused a noticeable slowdown, forcing KB Home to lower its full-year 2025 housing revenue guidance to a range of $6.10 billion to $6.20 billion (as of Q3 2025), down from earlier, more optimistic projections. This isn't a company-specific issue; it's a direct hit from the Federal Reserve's actions, and it's why you see demand 'in a bit of a wait-and-see mode.'

Operationally, this market pressure translates into a few key metrics that warrant close attention:

• Order Shortfall: Net orders have fallen short of internal goals, and the monthly absorption pace per community is below recent years.
• Cancellation Rate: The cancellation rate as a percentage of gross orders rose to a high 17% in the third quarter of 2025, up from 15% in the prior-year quarter. That's a direct loss of sales momentum.
• Margin Pressure: The housing gross profit margin (excluding inventory charges) declined to 18.9% in Q3 2025, down from 20.6% in the prior year, showing the cost of concessions or pricing adjustments needed to move homes.

The company's strategic risk lies in land management and execution. Land market conditions are evolving, and KB Home is being disciplined, which is smart. They canceled contracts to purchase approximately 6,800 lots in Q3 2025 because those lots no longer met their underwriting criteria. This protects future returns but also means a smaller lot portfolio (down to 65,251 lots in Q3 2025) which could impact long-term community count growth. Also, don't forget regulatory risk; for instance, new California climate-disclosure laws (like SB-253 and SB-261) could increase costs and delay projects, which is a constant headwind in the homebuilding sector.

Here's the quick math on profitability pressure: the Homebuilding Operating Income Margin (adjusted) for Q3 2025 was 8.8%, a significant drop from 10.9% in the comparable 2024 quarter. That's a clear sign of reduced operating leverage.

To mitigate these risks, KB Home is executing a clear strategic pivot. They are shifting their mix from about 50% built-to-order (BTO) homes back toward a historical target of 70%. This is a great move because BTO homes currently generate a gross margin that is 250 to 500 basis points higher than their inventory homes, which helps absorb rising costs and market pressure. They are also focused on internal controls, materially reducing build times and lowering direct costs to boost operational efficiency. Plus, a strong balance sheet, with a debt-to-capital ratio of 33.2% as of Q3 2025, allows them to return capital, repurchasing over $490 million of stock in the first nine months of fiscal 2025. This capital allocation provides a strong buffer against market uncertainty. For a deeper dive into the valuation, check out Breaking Down KB Home (KBH) Financial Health: Key Insights for Investors.

Your next step is to monitor the BTO mix progress and the net order absorption rate in the upcoming Q4 2025 report; that will tell you if their strategic pivot is gaining traction against the current of a volatile market.

Growth Opportunities

You're looking for where KB Home (KBH) can find meaningful growth, especially with the housing market's current volatility. The direct takeaway is that their growth isn't coming from massive market expansion right now; it's coming from a strategic, margin-focused pivot back to their core Built-to-Order (BTO) model and relentless operational efficiency.

The company has a clear path to future revenue, supported by a substantial land pipeline and a shift in product mix. For the full 2025 fiscal year, KB Home projects housing revenues between $6.1 billion and $6.2 billion, with the full-year average selling price (ASP) expected to be around $483,000. This is a realistic forecast, acknowledging market headwinds, but it's built on a defensible strategy.

Here's the quick math on their core growth driver: KB Home is actively increasing its BTO mix-where buyers customize their homes-from its current level of about 50% back toward its historical average of 70%. This move is defintely a margin play, as BTO homes generate a gross margin that is 250 to 500 basis points higher than their inventory homes. That's a significant lift to profitability without needing a massive jump in deliveries.

• Focus on BTO for 250-500 bps gross margin expansion.
• Community count expected to stabilize at approximately 250 active communities.
• Build times reduced by 20% year-over-year to 140 days, boosting capital efficiency.

Their land strategy is also a key enabler. As of the second quarter of 2025, KB Home controls 74,837 lots, which gives them roughly three years of supply. They've secured all the lots they need for 2025 and most for 2026 and 2027 deliveries, so future growth isn't constrained by land acquisition in the near-term. They are investing heavily, with plans to increase their land acquisition and development investment in 2025, building on the over $2.8 billion invested in 2024.

KB Home's competitive advantages are rooted in this customer-centric model and their strong financial position, which offers resilience in a tough market. This is a company that can afford to be patient. For example, their liquidity stood at a strong $1.19 billion as of Q2 2025, and their debt-to-capital ratio was manageable at 32.2%. They also offer integrated mortgage and title services, which helps streamline the homebuying process for their diverse customer base, which includes 50% first-time homebuyers.

What this estimate hides is the potential for a larger revenue upside if mortgage rates decline, which would immediately unlock demand from their large first-time buyer segment. They also continue to lead in sustainability, building energy-efficient and water-conserving homes, a product innovation that appeals strongly to cost-conscious buyers. To be fair, this is a capital-intensive business, and market conditions are still soft. You can get a deeper look at who is betting on this strategy in Exploring KB Home (KBH) Investor Profile: Who's Buying and Why?

Here is a snapshot of their full-year 2025 guidance, which acts as a baseline for future performance: