U.S. markets open in 9 hours 10 minutes
  • S&P Futures

    4,159.00
    -5.75 (-0.14%)
     
  • Dow Futures

    33,982.00
    -34.00 (-0.10%)
     
  • Nasdaq Futures

    13,901.00
    -18.25 (-0.13%)
     
  • Russell 2000 Futures

    2,228.70
    -9.70 (-0.43%)
     
  • Crude Oil

    61.10
    -0.25 (-0.41%)
     
  • Gold

    1,793.20
    +0.10 (+0.01%)
     
  • Silver

    26.58
    +0.01 (+0.02%)
     
  • EUR/USD

    1.2038
    -0.0001 (-0.01%)
     
  • 10-Yr Bond

    1.5640
    +0.0020 (+0.13%)
     
  • Vix

    17.50
    -1.18 (-6.32%)
     
  • GBP/USD

    1.3933
    +0.0001 (+0.01%)
     
  • USD/JPY

    107.9900
    -0.0530 (-0.05%)
     
  • BTC-USD

    53,986.95
    -2,048.26 (-3.66%)
     
  • CMC Crypto 200

    1,244.99
    -17.97 (-1.42%)
     
  • FTSE 100

    6,895.29
    +35.42 (+0.52%)
     
  • Nikkei 225

    29,084.69
    +576.14 (+2.02%)
     

Is Toll Brothers (TOL) Profitable Pick for Value Investors?

  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
Zacks Equity Research
·5 min read
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?

One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Toll Brothers, Inc. TOL stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:

PE Ratio

A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.

On this front, Toll Brothers has a trailing twelve months PE ratio of 15.53, as you can see in the chart below:

This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 27.6. If we focus on the long-term PE trend, Toll Brothers’ current PE level puts it below its midpoint over the past five years.

However, the stock’s PE compares unfavorably with the Zacks Construction Market sector’s trailing twelve months PE ratio, which stands at 21.1. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.

We should also point out that Toll Brothers has a forward PE ratio (price relative to this year’s earnings) of just 11.21, so it is fair to say that a slightly more value-oriented path may be ahead for Toll Brothers stock in the near term too.

P/S Ratio

Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.

Right now, Toll Brothers has a P/S ratio of about 0.98. This is lower than the S&P 500 average, which comes in at 4.82 right now. Also, as we can see in the chart below, this is below the highs for this stock in particular over the past few years.

If anything, TOL is in the lower end of its range in the time period from a P/S metric, suggesting some level of undervalued trading—at least compared to historical norms.

Broad Value Outlook

In aggregate,Toll Brothers currently has a Zacks Value Score of A, putting it into the top 20% of all stocks we cover from this look. This makes Toll Brothers a solid choice for value investors.

What About the Stock Overall?

Though Toll Brothers might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth Score of A and a Momentum Score of D. This gives TOL a Zacks VGM score — or its overarching fundamental grade — of A. (You can read more about the Zacks Style Scores here >>)

Meanwhile, the company’s recent earnings estimates have been disappointing. The current year has seen six estimates go higher in the past sixty days compared to no movement in the opposite direction, while the full year 2021 estimate has seen two upward revision compared to no downward in the same time period.

This has had a negative impact on the consensus estimate though as the current year consensus estimate has fallen by 19.7% in the past two months, while the full year 2021 estimate has declined by 1.4%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Toll Brothers Inc. Price and Consensus

Toll Brothers Inc. Price and Consensus
Toll Brothers Inc. Price and Consensus

Toll Brothers Inc. price-consensus-chart | Toll Brothers Inc. Quote

Despite the bearish analyst sentiments, the stock holds a Zacks Rank #3 (Hold). Thus, we are looking for in-line performance from the company in the near term.

Bottom Line

Toll Brothers is an inspired choice for value investors, as it is hard to beat its incredible line up of statistics on this front. A bullish industry rank (among top 27% of more than 250 industries) further instills our confidence. In fact, over the past two years, the Zacks Building Products - Home Builders industry has clearly outperformed the market at large, as you can see below:

However, a Zacks Rank #3 makes it hard to get too excited about this company overall.

So, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.

Ignited by referendums and legislation, this industry is expected to blast from an already robust $17.7 billion in 2019 to a staggering $73.6 billion by 2027. Early investors stand to make a killing, but you have to be ready to act and know just where to look.

See the pot stocks we're targeting >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Toll Brothers Inc. (TOL) : Free Stock Analysis Report

To read this article on Zacks.com click here.