TOL - TOLL Brothers

[RuleNumberOne]

At $34.77, TOL is at a price first hit in September 2012 in this bull market. TOL has:

 

- market cap of $5 billion

- net debt ~$2.5 billion

- bought back ~$1.2 billion shares of stock in the last 3 years.

- book value has gone from $18 to $32 during 2012-2018 but share price has gone nowhere.

- book value is mostly composed of inventory (land, built homes awaiting sale, homes under construction)

 

- The curious thing is TOL has never bought back shares this aggressively. Going back to 1986, we don't see any share repurchases.

 

- But 2016, 2017, 2018 have seen large share buybacks. Share count peaked in 2015.

 

TOL presents its 33-year financial history in a big spreadsheet in its annual report. It is indicative of a moat of some sort.

https://investors.tollbrothers.com/~/media/Files/T/TollBrothers-IR/documents/annual-reports/2018-toll-brothers-annual-report.pdf

 

[cameronfen]

At $34.77, TOL is at a price first hit in September 2012 in this bull market. TOL has:

 

- market cap of $5 billion

- net debt ~$2.5 billion

- bought back ~$1.2 billion shares of stock in the last 3 years.

- book value has gone from $18 to $32 during 2012-2018 but share price has gone nowhere.

- book value is mostly composed of inventory (land, built homes awaiting sale, homes under construction)

 

- The curious thing is TOL has never bought back shares this aggressively. Going back to 1986, we don't see any share repurchases.

 

- But 2016, 2017, 2018 have seen large share buybacks. Share count peaked in 2015.

 

TOL presents its 33-year financial history in a big spreadsheet in its annual report. It is indicative of a moat of some sort.

https://investors.tollbrothers.com/~/media/Files/T/TollBrothers-IR/documents/annual-reports/2018-toll-brothers-annual-report.pdf

 

The question is when is the next recession going to hit and how badly will that affect housing.  I'm not sure for a cyclical company you should use buybacks to judge undervaluation.  There is a lot of evidence (I don't know the actual stats, just I've heard this argument multiple times) that companies, especially cyclical companies by back stock in greater quantities when their stock is relatively expensive, and less when the stock is cheap.  The reason, I think, is because at cyclical peaks the stock is both expensive and the company has earnings to buy back shares, the opposite is true in both cases at troughs. 

[wolverine890]

I would look at NVR. Their conservative business model, capital allocation strategy and refusal to engage with wall street make them, in my opinion, one of the best companies you can own. Not to mention their annual filings are only like 50 pages (1/3 that of toll bros). so they are for the lazy investors too. :)