Today we're going to take a look at the well-established Toll Brothers, Inc. (NYSE:TOL). The company's stock led the NYSE gainers with a relatively large price hike in the past couple of weeks. The company is now trading at yearly-high levels following the recent surge in its share price. With many analysts covering the large-cap stock, we may expect any price-sensitive announcements have already been factored into the stock's share price. However, what if the stock is still a bargain? Let's take a look at Toll Brothers's outlook and value based on the most recent financial data to see if the opportunity still exists.
What's The Opportunity In Toll Brothers?
The share price seems sensible at the moment according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. In this instance, we've used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock's cash flows. We find that Toll Brothers's ratio of 10.06x is trading slightly below its industry peers' ratio of 11.89x, which means if you buy Toll Brothers today, you'd be paying a decent price for it. And if you believe that Toll Brothers should be trading at this level in the long run, then there's not much of an upside to gain over and above other industry peers. Although, there may be an opportunity to buy in the future. This is because Toll Brothers's beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company's shares will likely fall by more than the rest of the market, providing a prime buying opportunity.
Can we expect growth from Toll Brothers?
Future outlook is an important aspect when you're looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Buying a great company with a robust outlook at a cheap price is always a good investment, so let's also take a look at the company's future expectations. However, with a relatively muted profit growth of 7.9% expected over the next couple of years, growth doesn't seem like a key driver for a buy decision for Toll Brothers, at least in the short term.
What This Means For You
Are you a shareholder? It seems like the market has already priced in TOL's growth outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven't considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at TOL? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?
Are you a potential investor? If you've been keeping tabs on TOL, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive growth outlook may mean it's worth diving deeper into other factors in order to take advantage of the next price drop.
If you'd like to know more about Toll Brothers as a business, it's important to be aware of any risks it's facing. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Toll Brothers.
If you are no longer interested in Toll Brothers, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
