Earnings

Comparing Valuation And Performance: Paramount Group, Inc. (PGRE), KB Home (KBH)

The shares of Paramount Group, Inc. have decreased by more than -9.72% this year alone. The shares recently went up by 2.21% or $0.31 and now trades at $14.31. The shares of KB Home (NYSE:KBH), has slumped by -16.59% year to date as of 04/26/2018. The shares currently trade at $26.65 and have been able to report a change of -0.74% over the past one week.

The stock of Paramount Group, Inc. and KB Home were two of the most active stocks on Thuday. 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. PGRE has an EBITDA margin of 30.97%, this implies that the underlying business of PGRE is more profitable. The ROI of PGRE is 1.40% while that of KBH is 4.30%. These figures suggest that KBH ventures generate a higher ROI than that of PGRE.

Cash Flow

The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, PGRE’s free cash flow per share is a positive 0, while that of KBH is negative -3.3.

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 PGRE is 0.85 compared to 1.27 for KBH. KBH can be able to settle its long-term debts and thus is a lower financial risk than PGRE.

Valuation

PGRE currently trades at a forward P/E of 130.09, a P/B of 0.82, and a P/S of 4.88 while KBH trades at a forward P/E of 8.45, a P/B of 1.25, and a P/S of 0.58. This means that looking at the earnings, book values and sales basis, PGRE 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 PGRE is currently at a -14.72% to its one-year price target of 16.78. Looking at its rival pricing, KBH is at a -16.8% relative to its price target of 32.03.




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), PGRE is given a 2.80 while 3.30 placed for KBH. 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 PGRE is 4.02 while that of KBH is just 3.64. This means that analysts are more bullish on the forecast for KBH stock.

Conclusion

The stock of KB Home defeats that of Paramount Group, Inc. when the two are compared, with KBH taking 6 out of the total factors that were been considered. KBH 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, KBH is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for KBH is better on when it is viewed on short interest.

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