Shares of homebuilder KB Home (KBH) have rallied over thirty percent since their August 2019 breakout; despite these gains the shares may still have some upside left, suggests Joe Duarte, growth stock expert and editor of In the Money Options.
Consider the fact that interest rates remain low and that we are in the midst of a multifactorial demographic shift. First, as hard to believe as it may be more Millennials are reaching the age where families and homes are becoming more important than video games and other distractions. At the same time, empty nesters are looking to downsize.
Meanwhile, interest rates remain low and, despite the continuous calls for a recession, by and large the economy remains in decent shape. What that means is that homebuilders, such as KB Home — who are targeting first time home buyers as well as those looking to downsize — are in a sweet spot.
In fact, the most recent earnings call from KBH pinpoints those two groups as their largest area of focus. Furthermore, with tight housing supplies and still overpriced existing homes, new homes that are attractively priced and feature strong locations and amenities are in high demand while facing relatively small competition.
What makes this trend go south? Some combination of higher interest rates and a slowing economy where job losses increase and consumers have to tighten their wallets along with rising competition from existing homes if those prices start to come down.
Otherwise, barring a major market event, and even though there may be some bumps along the way, KBH and other homebuilders should stay on the right side of the momentum curve. (For full disclosure, Joe Duarte owns KBH as of this writing.)
