The shares of KB Home have increased by more than 20.75% this year alone. The shares recently went up by 12.31% or $4.23 and now trades at $38.58. The shares of Apache Corporation (NYSE:APA), has jumped by 8.95% year to date as of 01/11/2018. The shares currently trade at $46.00 and have been able to report a change of -1.79% over the past one week.
The stock of KB Home and Apache Corporation were two of the most active stocks on Thursday. Investors seem to be very interested in what happens to the stocks of these two companies but do investors favor one over the other? We will analyze the growth, profitability, risk, valuation, and insider trends of both companies and see which one investors prefer.
Profitability and Returns
Growth alone cannot be used to see if the company will be valuable. Shareholders will be the losers if a company invest in ventures that aren’t profitable enough to support upbeat growth. In order for us to accurately measure profitability and return, we will be using the EBITDA margin and Return on Investment (ROI), which balances the difference in capital structure. KBH has an EBITDA margin of 5.39%, this implies that the underlying business of APA is more profitable. The ROI of KBH is 2.70% while that of APA is -8.40%. These figures suggest that KBH ventures generate a higher ROI than that of APA.
The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, KBH’s free cash flow per share is a positive 3.99, while that of APA is negative -5.84.
Liquidity and Financial Risk
The ability of a company to meet up with its short-term obligations and be able to clear its longer-term debts is measured using Liquidity and leverage ratios. The debt ratio of KBH is 1.36 compared to 1.21 for APA. KBH can be able to settle its long-term debts and thus is a lower financial risk than APA.
KBH currently trades at a forward P/E of 16.86, a P/B of 1.80, and a P/S of 0.80 while APA trades at a forward P/E of 57.00, a P/B of 2.50, and a P/S of 3.12. This means that looking at the earnings, book values and sales basis, KBH is the cheaper one. It is very obvious that earnings are the most important factors to investors, thus analysts are most likely to place their bet on the P/E.
Analyst Price Targets and Opinions
The mistake some people make is that they think a cheap stock has more value to it. In order to know the value of a stock, there is need to compare its current price to its likely trading price in the future. The price of KBH is currently at a 46.08% to its one-year price target of 26.41. Looking at its rival pricing, APA is at a -2.65% relative to its price target of 47.25. This figure implies that over the next one year, APA is a better investment.
When looking at the investment recommendation on say a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell), KBH is given a 3.30 while 3.00 placed for APA. This means that analysts are more bullish on the outlook for KBH stocks.
Insider Activity and Investor Sentiment
Short interest or otherwise called the percentage of a stock’s tradable shares currently being shorted is another data that investors use to get a handle on sentiment. The short ratio for KBH is 5.90 while that of APA is just 8.02. This means that analysts are more bullish on the forecast for KBH stock.
The stock of Apache Corporation defeats that of KB Home when the two are compared, with APA taking 6 out of the total factors that were been considered. APA happens to be more profitable, generates a higher ROI, has higher cash flow per share, higher liquidity and has a lower financial risk. When looking at the stock valuation, APA is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for APA is better on when it is viewed on short interest.