Toll Brothers Is Building Again

May. 2.12 | About: Toll Brothers (TOL)

With housing starts up it's time to look at Toll Brothers (NYSE:TOL) again. Right now new orders are up 9% over last year and Toll Brothers have their eye on the high end market averaging almost $600K per house. The stock is doing very well this past month as this hourly trading chart provided by Barchart shows:

(Click to enlarge)

In the past 6 months Toll Brothers has outstripped the market as measured by the Value Line Index which is up 17% while TOL is up 37% during the same period:

(Click to enlarge)

Toll Brothers, Inc., together with its subsidiaries, designs, builds, markets and arranges finance for single-family detached and attached homes in luxury residential communities. It is also involved in building or converting existing rental apartment buildings into high-, mid-, and low-rise luxury homes. In addition, the company develops, owns, and operates golf courses and country clubs associated with various planned communities, as well as individual communities. It serves move-up, empty-nester, active-adult, age-qualified, and second-home buyers in 19 states in the United States. Toll Brothers, Inc. was founded in 1967 and is headquartered in Horsham, Pennsylvania. (Yahoo Finance profile)

Factors to consider:

Barchart technical indicators:

  • 100% Barchart technical buy signal
  • Trend Spotter buy signal
  • Above its 20, 50 and 100 day moving averages
  • 6 new highs and up 8.13% in the past month
  • Relative Strength Index 66.13
  • Barchart computes a technical support level at 24.75
  • Recently traded at 25.94 with a 50 day moving average of 23.68

Fundamental factors:

  • This has been a Wall Street favorite where 17 brokerage firms have assigned 24 analysts to follow the numbers
  • Analysts predict revenue will be up 17.20% this year and another 21.80% next year
  • Earnings estimates are for an increase of 37.50% this year and additional 130.30% next year and to continue by an annual increase of 17.87% for the next 5 years
  • These consensus numbers resulted in brokerage firms issuing 1 strong buy, 10 buy, 12 holds, no under perform and a single sell signal to their clients
  • Because earning have been so thin the P/E ratio is a very high 129.05
  • New orders up almost 45%

General investor interest:

  • Please note that the individual investor as measured by the readership of Motley Fool has the opposite opinion of the professional analysts
  • 1,368 readers voted 52% that the stock will under perform the market
  • Even the more experienced All Stars voted 51% for the same result
  • Two recently released buy signals were given by Deutsche Securities and Jim Cramer

All the home builders seem to be in recovery and while Toll Brothers was up 27% in the past year, Lennar (NYSE:LEN) was up 53%, D R Horton (NYSE:DHI) up 40% and Pulte Group (NYSE:PHM) up 29%:

(Click to enlarge)

Summary: If your looking for a play in the home building market Toll Brothers seems to be a good play. You know how I like stock that have double digit revenue and earnings projections.They target the high end market and that is the segment of the market that should recover first. In this housing market any thing can happen so I think you should closely watch the bottom 14 day turtle channel and place appropriate stop losses on your positions.

(Click to enlarge)

Disclosure: I am long TOL.