Investors Are Getting a Deal on This Homebuilding Stock

Toll Brothers is ripe for a shift in analyst attention

Oct 22, 2021 at 10:59 AM
facebook twitter linkedin

Last week, we profiled an under-the-radar homebuilding stock. Now, we're going to take a look at a more household name -- no pun intended. Toll Brothers, Inc. (NYSE:TOL) is up 1.1% today to trade at $61.57, on track for its highest close in over a month. The shares are shrugging off a price-target cut to TOL yesterday, in which RBC trimmed its objective to $74 from $76. 

Toll Brothers stock is up 41% in 2021, likely enjoying tailwinds from the surge in home prices the last 18 months. Despite the uptrend, seven of the 12 brokerages in coverage maintain a "hold" or worse rating on TOL. However, the stock's consensus 12-month price target of $70.68 is a healthy 15% premium from its current perch, suggesting last night's price-target cut could be just the beginning.

From a fundamental point of view, Toll Brothers has maintained steady revenue growth in recent years with the exception of 2020. TOL's revenues are currently up 43% since fiscal 2017, despite reporting a 2% decrease in fiscal 2020. The homebuilder hasn’t been as consistent on the bottom-line, experiencing 40% decrease in net income between fiscal 2018 and fiscal 2020.

Nonetheless, Toll Brothers stock has a very intriguing valuation with a forward dividend of $0.68 and a dividend yield of 1.12%. TOL trades at a great price-earnings ratio of 11.73 and has a strong price-sales ratio of 0.90, making a 15-25% jump in Toll Brothers' stock price very plausible in the short term. In addition, TOL has an excellent forward price-earnings ratio of 7.26, indicating that the company is expected to have significant earnings growth over the coming year, even after growing net income 47% over the past year.

Options traders have been focusing on puts, and an unwinding of this pessimism could fuel additional TOL upside. The equity's Schaeffer's put/call open interest ratio (SOIR) of 1.08 stands higher than 98% of readings from the past year, suggesting these short-term options traders have rarely been more put-biased. 


Stop leaving money on the table with the same old broken options trading approach...

There is no options strategy that more perfectly capitalizes during earnings season better than this simple call and put buying strategy. Perfect for aggressive traders looking to recover their suffering portfolios so far in 2022. With the simplest possible options strategy, Schaeffer's team with 100+ years of options trading excellence, target 200% gains on every single trade. So many trades are being beaten down by the market, but don't be one of them! Don't waste another second... join us right now before the next trade is released! 

Schaeffer's Daily Bulletin Offer


Special Offers from Schaeffer's Trading Partners