Toll Brothers, Inc.

**Technical Analysis**

TOL exhibits exceptionally strong momentum, having more than doubled from its 52-week low and significantly outperforming the market over short-term periods. While currently trading near its all-time highs—suggesting limited immediate upside—its controlled historical drawdown indicates resilience. The high beta implies amplified volatility, so investors should expect sizable swings relative to the broader market.

**Fundamental Analysis**

Toll Brothers maintains solid profitability and a robust balance sheet, with low debt levels and strong liquidity. However, recent margin compression and low asset turnover reflect industry challenges, and high inventory days tie up substantial capital. These factors point to a stable but capital-intensive operation with mixed efficiency.

**Valuation & Peer Comparison**

TOL’s trailing P/E appears low, but a negative PEG and elevated EV/EBITDA signal underlying concerns about growth and cash flow. While the stock might seem inexpensive relative to sector peers, negative earnings growth expectations detract from its appeal. Investors should weigh valuation metrics cautiously amid sector headwinds.

**Risk Assessment**

The stock’s high beta and exposure to housing market cycles introduce notable volatility and macroeconomic sensitivity. Although low short interest reduces near-term bearish pressure, risks from interest rate changes and economic downturns remain significant.

**Investment Recommendation**

Buy – with caution. TOL's strong price momentum, healthy balance sheet, and reasonable trailing valuation support a positive outlook. However, investors should be mindful of margin pressures, high volatility, and cyclical risks in the housing sector. This stock suits those comfortable with sector-specific fluctuations and seeking exposure to a well-managed homebuilder.

RockFlow Model Forecast: Three Scenarios for 2026

Based on the provided analysis, here is a 12-month outlook for Toll Brothers (TOL):

Catalysts: The primary positive catalysts are TOL's exceptionally strong price momentum and its robust balance sheet with low debt, positioning it to navigate the challenging housing environment better than some peers. A shift in the interest rate outlook from the Federal Reserve would be the most significant potential catalyst, potentially reigniting housing demand.

Risks: The outlook is tempered by significant risks, including persistent margin compression, high sensitivity to economic cycles (high beta), and the ongoing challenge of high capital tied up in inventory. The primary risk remains a deterioration in the macroeconomic environment or interest rates staying higher for longer, which would pressure buyer affordability.

Target Price: While no specific analyst target was provided, the analysis suggests limited near-term upside as the stock trades near all-time highs. Expect significant volatility, but the strong fundamentals provide a floor. A realistic 12-month range could see the stock testing new highs on positive macro news (~$180-$190) or retreating to the $130-$140 range if sector headwinds intensify.

Wall Street Consensus

Most Wall Street analysts are optimistic about Toll Brothers, Inc.'s 12-month outlook, with consensus target around $160.20, indicating expected upside potential.

Overall, TOL has investment potential but also faces challenges. Here are key factors to weigh before investing.

TOL has demonstrated exceptional outperformance with strong upward momentum over recent periods. The stock has more than doubled from its 52-week low, showing remarkable strength in the housing sector.

Short-term performance is robust, with TOL gaining 11.35% over one month and 21.46% over three months, significantly outperforming the market by 19.61%. This substantial alpha generation, coupled with the stock's high beta of 1.465, indicates both strong returns and elevated volatility relative to the broader market.

Currently trading at $160.2, TOL sits near the upper end of its 52-week range, approximately 85% above its low and just 4.9% below its high. While not technically overbought, the proximity to all-time highs suggests limited upside potential in the near term, though the modest maximum drawdown of -21.41% indicates relatively controlled downside risk.

Revenue & Profitability TOL demonstrates strong profitability with a net margin of 9.83% in Q1 2026, though this represents a sequential decline from the 13.05% margin achieved in Q4 2025. The company maintains healthy operating leverage, as evidenced by an operating income ratio of 10.21%, but the contraction in the gross profit ratio from 25.96% to 22.84% quarter-over-quarter suggests potential margin pressure from rising costs.

Financial Health The company exhibits a robust financial position with a very low debt ratio of 18.9% and a minimal debt-to-equity ratio of 0.32, indicating a conservative capital structure with minimal leverage. A strong current ratio of 4.38 further underscores solid short-term liquidity, although the quick ratio of 0.42 highlights that liquidity is heavily dependent on inventory.

Operational Efficiency TOL's operational efficiency is mixed, with a modest return on equity of 2.51% and an asset turnover of 0.15, reflecting the capital-intensive nature of the homebuilding business. The exceptionally high days of inventory outstanding (609 days) is typical for the industry but indicates significant capital is tied up in unsold homes and land, impacting overall capital efficiency.

Valuation Level: TOL's TTM PE ratio of 11.26 appears relatively low, suggesting the stock may be undervalued on a trailing earnings basis. However, the forward PE of 16.39 indicates expected earnings pressure, and the negative PEG ratio points to negative earnings growth projections, which raises concerns about the sustainability of current valuations. The extremely high EV/EBITDA ratio of 65.22 further signals potential overvaluation when considering the company's debt and operational cash flow.

Peer Comparison: Without specific industry average data, a precise peer comparison cannot be conducted. However, residential construction companies typically trade at higher multiples than TOL's current PE ratios, suggesting TOL might appear undervalued relative to sector norms. The negative growth metrics, particularly the PEG ratio, would likely place TOL at a disadvantage compared to profitable, growing peers in the homebuilding industry.

Volatility Risk: TOL’s beta of 1.465 indicates the stock is approximately 46.5% more volatile than the broader market, presenting elevated volatility risk driven by sensitivity to economic and housing sector fluctuations. This is compounded by a significant one-year maximum drawdown of -21.41%, highlighting substantial downside volatility and potential for material losses during market downturns.

Other Risks: While the absence of reported short interest suggests minimal speculative pressure or near-term downside risk from bearish bets, investors should still consider broader liquidity and sector-specific risks. The stock remains exposed to macroeconomic factors such as interest rate changes and housing market cycles, which directly impact performance despite the lack of short-side interest.