Toll Brothers Inc (TOL) recently announced its financial results for the third quarter of FY 2024. The company has shown strong performance in several areas, despite a slight decrease in some key metrics compared to the previous year.
Key Insights from Toll Brothers Q3 Report:
Below are the key findings from Toll Brothers’ recent quarterly report.
- Net Income Decline: Toll Brothers reported a net income of $374.6 million ($3.60 per diluted share) for Q3 FY 2024, down from $414.8 million ($3.73 per share) in Q3 FY 2023.
- Revenue Growth: Home sales revenues increased by 2% to $2.72 billion, driven by an 11% rise in delivered homes, with an average price per home of $968,000.
- Strong Contract Demand: Net signed contract value grew by 11% to $2.41 billion, reflecting strong demand in the luxury housing market.
- Backlog Decrease: The backlog value fell by 10% to $7.07 billion, suggesting potential challenges in sustaining future revenues.
- Margin Reduction: Home sales gross margin slightly declined to 27.4% from 27.8%, while the adjusted gross margin dropped to 28.8% from 29.3%.
- Operating Income Decline: Operating income decreased to $497.2 million from $515.1 million, largely due to an increase in SG&A expenses, which rose to 9.0% of home sales revenues from 8.6% the previous year.
Stock Target Advisor’s Analysis on Toll Brothers Inc:
According to Stock Target Advisor, the average analyst target price for Toll Brothers Inc. is $131.27 over the next 12 months, with an overall analyst rating of “Buy.” However, Stock Target Advisor’s own analysis is “Bearish,” based on one positive signal and four negative signals. The stock has shown strong performance in the past year, with a 75.87% increase in its stock price, but it also exhibits high volatility, making it a risky investment for some investors.
The analysis highlights concerns such as low earnings and revenue growth over the past five years, along with low dividend growth, which may be a deterrent for income-focused investors. Despite these challenges, the stock has provided superior risk-adjusted returns compared to its sector peers, placing it in the top quartile.
Should I Buy Toll Brothers Stock?
Investors considering Toll Brothers stock should weigh the company’s strong market position in the luxury home segment against the potential risks highlighted by Stock Target Advisor. The company has shown resilience by increasing its home sales revenue and maintaining a strong demand for new contracts, which could support future growth. However, the declining backlog and reduced margins could pose challenges in sustaining this growth.
Additionally, the stock’s high volatility and low earnings and revenue growth might make it less attractive for conservative investors. On the other hand, those with a higher risk tolerance might find the stock’s superior risk-adjusted returns appealing, especially given the company’s plans to increase share repurchases and its optimistic outlook for the rest of FY 2024.
Conclusion:
Toll Brothers Inc. continues to perform well in the luxury home market, despite facing some headwinds. The company’s strong revenue growth, coupled with a robust demand for new contracts, suggests a positive outlook. As always, individual investment decisions should align with one’s risk tolerance and investment strategy.
Muzzammil is a content writer at Stock Target Advisor. He has been writing stock news and analysis at Stock Target Advisor since 2023 and has worked in the financial domain in various roles since 2020. He has previously worked on an equity research firm that analyzed companies listed on the stock markets in the U.S. and Canada and performed fundamental and qualitative analyses of management strength, business strategy, and product/services forecast as indicated by major brokers covering the stock.
