Homebuilding Stock's Dip Might Be Worth Checking Out

Should you build TOL into your portfolio?

Feb 16, 2022 at 12:32 PM
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Toll Brothers, Inc. (NYSE:TOL) is gearing up to release its fiscal first-quarter earnings after the close on Tuesday, Feb. 22, with a conference call to discuss the results the following day. During its last quarter Toll Brothers posted earnings of  $3.02 per share for its fourth quarter of fiscal 2021, Wall Street analysts now expect that TOL will report earnings of just $1.15 per share in this upcoming earnings report.

Toll Brothers stock has seen a steady decrease since hitting a record high of $75.61 back in mid-December, with pressure emerging at the 20-day moving average. TOL is staring at a rough 24% year-to-date deficit, but clings to a year-over-year lead, thanks in part to a long-term floor at the $53 level, which is also home to the stock's 2018 highs. 

tol feb 16

Toll Brothers saw a streak of negative post-earnings moves in 2020, but turned its luck around in 2021, notching four-consecutive sessions of positive next-day returns. Regardless of direction, the stock averaged a move of 5% the day after earnings, which is slightly smaller than the 7% swing the options pits are pricing in this time around. 

Analysts remain hesitant. Of the 13 in coverage, just three consider it a "buy" or better, while six say "hold" and four maintain a "sell" or worse rating. The 12-month consensus price target of $75.07, meanwhile, is a 37.4% premium to current levels. 

From a fundamental point of view, Toll Brothers stock has a very attractive valuation. TOL trades at a price-earnings ratio of 8.16 and a price-sales ratio of 0.77. Toll Brothers stock also has a forward price-earnings ratio of 5.30, with the company estimated to grow earnings 16.9% for fiscal 2023. TOL is also estimated to increase revenues 13.4% for fiscal 2023 after experiencing just 23% revenue growth between fiscal 2018 and fiscal 2021.

On the bottom-line Toll Brothers has struggled to maintain consistent growth, experiencing a 40% drop in net income between fiscal 2018 and fiscal 2020. Nonetheless, TOL has since recovered, growing its annual net income 86% in fiscal 2021. Overall, Toll Brothers stock offers an intriguing opportunity for long-term investors as the company begins to see higher growth figures.


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