Homebuilder KB Home (KBH) is set to report earnings after the close today, and it looks to have a very high bar in terms of expectations given how much it has rallied over the last few weeks.  With housing data coming in much better than expected over the last couple of months as mortgage rates have fallen, KBH is up 70% YTD and 15% this month alone.  When a stock is trading at extreme overbought levels heading into an earnings report, it has a lot to live up to.

KBH has been an earnings beast over the last few years.  Remarkably, the stock has opened higher on the first trading day following its last ten quarterly reports!  You have to go back to KBH’s January 2017 report to find the last time the stock opened lower in reaction to earnings.  This type of positive consistency in reaction to earnings cuts both ways.  On the one hand, why fight the tape and bet against such a big earnings winner?  On the other hand, KBH is certainly due for a clunker one of these quarters.

Our take would be to avoid being long this name into earnings tonight because of how extended it has gotten this month.  As mentioned earlier, the stock has rallied 15% since the start of September, so we have to assume that most of the positives from tonight’s earnings release have already been priced into the stock.  On the flip side, a failure to handily beat expectations would likely send KBH shares falling sharply back down to their normal trading range.Start a two-week free trial to Bespoke Institutional to access our popular Earnings Explorer tool and our full Research Dashboard.

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