Home Construction Stock Drops Despite Analyst Praise

TOL is attractively priced at the moment

Digital Content Manager
Oct 26, 2020 at 10:12 AM
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The shares of Toll Brothers Inc (NYSE:TOL) are down 3.5% at $46.41 this morning, despite earlier receiving an upgrade from Raymond James to "outperform" from "market perform" with a $55 price target. The analyst in coverage said new home demand is extending across all price points, including the luxury segment, and that the home construction company may be able to ride that tide to close its ROIC/ROE capital efficiency gap.

Digging deeper, the equity has been chopping higher on the charts since April to nearly quadruple off its March 18, nine-year low of $13.28. More recently, shares hit an Oct. 5, two year-high of $50.39, while today's pullback has found support at their 50-day moving average.

Analysts were mostly pessimistic towards Tolls Brothers stock coming into today, leaving plenty of room for more upgrades moving forward. Of  the 13 brokerages in question, nine carried a tepid "hold" or worse rating. Meanwhile, the 12-month consensus target price of $48.93 is an underwhelming 3.5% premium to current levels.

Digging deeper, shorts have been building their positions, too. Short interest is up 14.1% in the most recent reporting period, and the 7.36 million shares sold short account for a healthy 6.4% of the stock's available float. At the equity's average pace of trading, it would take almost four days to buy back these bearish bets, which could keep the wind at TOL's back. 

The options pits lean far more optimistic, however. The stock sports a 50-day call/put volume ratio of 2.68 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which sits in the 82nd percentile of its annual range. This suggests a healthier-than-usual appetite for bullish bets of late. 

Now certainly seems like a good time to take advantage of TOL options. This is per the security's Schaeffer's Volatility Index (SVI) of 47%, which sits in the low 21st percentile of all other annual readings, meaning the stock sports attractively priced premiums at the moment. Plus, the equity's Schaeffer's Volatility Scorecard (SVS) ranks at 96 out of 100, meaning TOL has tended to exceed these expectations during the past year -- a boon for premium buyers.  

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