Toll Brothers (NYSE:TOL) is a luxury homebuilder that was launched in 1986. Technically, TOL stock started in one community in Pennsylvania in 1967, but it now has developments in 22 states. And in those states, it focuses on the most desired zip codes, whether urban, suburban or exurban.
Earlier this week TOL delivered its Q3 earnings report. It was so good, TOL stock soared 13% on the day. Earnings were up 22% compared to the same quarter last year, and profits were up an impressive 44%. And revenue was up 27%.
The interesting thing is breaking out the segments to see where the growth is occurring. TOL has various segments, such as City Living, which focuses on luxury townhomes and condos in key cities.
The only segment that saw a decline in sales was its City Living division. However, home sales in general were up and home prices were up 7%, to an average $851,900.
TOL Stock Sees Green Pastures Ahead
Obviously, the high-end real estate market is back on its feet — and TOL is taking full advantage.
And this makes sense, since the luxury home segment is the least price-sensitive. That means it can absorb the additional costs of building during a trade war with Canada, which supplies lumber, and China, which supplies a lot of electrical and plumbing parts.
It does show up in the earnings, as margins took a slight hit in the last quarter. But again, TOL can eat some of the extra costs and it’s much easier to pass them on since with buyers that are spending this kind of money, it’s more a rounding error than anything else.
For lower-priced homes that may be a buyer’s first home or a small upgrade, those extra costs can add up. Those extra costs also represent more of the home’s pricing, too.
In high-end properties, you’re getting more custom work and location premiums added on. On entry-level and mid-priced homes, the production costs represent more of the core pricing.
Moving forward the good news for TOL is, this demographic will continue to lead the home-buying curve simply because these people have access to better rates and easier credit, as well as the fact that this remains the most active segment of the real estate market.
The next wave of the real estate revival will see growth come once rates stabilize and there’s better visibility for average consumers, since they are more concerned about paying extra tariff premiums and still have more challenges financing their purchases at competitive rates.
To this end, TOL already has boosted its Q4 guidance.
Year to date, TOL stock is still off nearly 20%. But given its current momentum, you’re getting a hot stock that’s trading at a mouthwatering discount.
Louis Navellier is a renowned growth investor. He is the editor of four investing newsletters: Growth Investor, Breakthrough Stocks, Accelerated Profits and Platinum Growth. His most popular service, Growth Investor, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.