Monday, March 06, 2006

Get ready to read more of these...

From the Street.com

Toll Brothers (TOL:NYSE - commentary - research - Cramer's Take) is down almost 50% off of its highs. Toll Brothers is trading at around a 6.5 price-to-earnings ratio and a 15% long-term growth rate.

Toll is the "McMansion" building leader, with an average new home selling for around $660,000. It averages $113,000 in upgrades and lot premiums, a 21% increase over base prices. This has given the builder the highest average net margin of all homebuilders for the last ten years.

Toll recently reported first-quarter earnings growth of 49%. It stated that 2006 earnings would come in at $4.77 to $5.26, and that return on equity on beginning capital would be more than 30%. Toll has a supply of 87,000 lots with a record 258 selling communities. The company ended its first quarter with a backlog of $5.95 billion.

When you consider that Toll's 2004 EPS was $2.52 and the coming year's estimates are around $5.00, this is a company that is hardly headed over a cliff. Yet the market is pricing it like it is. The housing market has cooled by every measure; however, its death is greatly exaggerated.

The object is to buy low and sell high: With any multiple expansion at all, Toll is a $50 stock over the next 12 months.

Remember, being poor is bad, staying that way is stupid.

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