Toll Brothers Inc (TOL): Continued Strength for Formerly Distressed Homebuilders

PulteGroup, Inc. (NYSE:PHM), another competitor, has also delivered a string of beats over the last year or so. This is without a doubt the best performing stock of the companies mentioned in this article, with a staggering 161% rise over the last twelve months. This can perhaps be explained by the company’s earnings history.

The firm lost money between 2007 and 2011, although the loss narrowed each year. Finally turning a profit in 2012, the stock is now being picked up big-time by investors. With a beta of 2.29, the stock is a volatile one, and with a total debt to equity ratio of over 114, the company may still be more vulnerable than the competition to a sudden downturn in the housing market, considering its high leverage. Also, the 3-5 year growth rate is currently negative.

Valuations and metrics

Toll Brothers Inc (NYSE:TOL) isn’t too expensive at the moment, trading at 11.88 times trailing earnings. This is higher than D.R. Horton, Inc. (NYSE:DHI)’s 8.35, but lower than PulteGroup, Inc. (NYSE:PHM)’s 27.75. The price to sales of 2.72 is a little high compared to the industry. On the other hand, the gross margin of around 23.3% is way ahead of the competition. The return on equity of 17.21% is decent, and the firm has the lowest total debt to equity ratio of the companies mentioned here.

The bottom line

According Toll Brothers Inc (NYSE:TOL) management, the housing recovery is still in its early stages. Still, earnings growth from companies in the industry is impressive, which may be a sign of more to come. With prices as well as sales on the increase, there is plenty of evidence that strength in the housing market is here to stay. Companies in the industry may as a result be seeing even more upside in the months to come.

The article Continued Strength for Formerly Distressed Homebuilders originally appeared on Fool.com and is written by Daniel James.

Daniel James has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Daniel is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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