The performance of Toll Brothers' stock (TOL) has been underwhelming over the past year, with a significant 13% decline in value. This downturn reflects ongoing challenges within the housing market, characterized by subdued demand and a squeeze on profit margins. The company's backlog and new orders have seen a continuous decrease, and projections for 2026 indicate lower delivery volumes, with earnings per share (EPS) likely to land at the lower end of the $13-$13.75 range. Furthermore, gross margins are under persistent pressure due to weak pricing power and rising material costs, suggesting that a recovery is unlikely before 2027. Despite a robust balance sheet and active share buybacks, the current market conditions offer limited upside. A more opportune entry point for investors would likely be below $120, when the housing market shows signs of bottoming out.
Toll Brothers' Performance Signals Caution in Housing Sector
In the evolving landscape of the housing market, Toll Brothers' recent financial results and forecasts paint a picture of ongoing challenges. The luxury homebuilder, a key player in the sector, has experienced a notable 13% drop in its stock value over the last year, largely attributable to a housing market that has yet to find its footing. Hopes for an early 2025 rebound in the housing sector have largely diminished, leaving investors and analysts with a cautious outlook.
During its fourth quarter, Toll Brothers reported a sustained decline in both its backlog and new orders. These metrics are critical indicators of future revenue and market confidence. The company's guidance for 2026 suggests a reduction in home deliveries, with projected earnings per share (EPS) anticipated to settle at the conservative end of the $13 to $13.75 spectrum. This outlook underscores the continued headwinds facing the construction industry.
Adding to the concerns, gross margins are under considerable strain. This pressure stems from a combination of weak pricing power—as buyers remain hesitant—and escalating costs for building materials. Industry experts are now projecting that a meaningful recovery in gross margins might not materialize until 2027, indicating a prolonged period of operational challenges for the company.
Despite these difficulties, Toll Brothers maintains a strong balance sheet, a testament to its prudent financial management. The company has also been actively engaged in share buyback programs, typically a sign of management's confidence in the company's intrinsic value. However, the prevailing sentiment suggests that these efforts alone may not be enough to drive significant stock appreciation in the near term. Analysts recommend that potential investors exercise patience, suggesting that a more favorable entry point—possibly below $120 per share—would emerge only when there are clearer signs of a definitive bottom in the broader housing market. This strategic waiting game reflects a prudent approach in an uncertain economic climate.
The current market dynamics for Toll Brothers highlight a broader reality for the housing sector: a complex interplay of demand, costs, and market sentiment. For investors, this situation underscores the importance of a long-term perspective and the wisdom of waiting for clearer indicators of market stability before committing new capital. It's a reminder that even companies with strong fundamentals can be significantly impacted by macro-economic forces, and timing remains a critical factor in investment decisions.
