What Happened?
Shares of homebuilding company Toll Brothers (NYSE: TOL) fell 1.1% in the morning session after the company reported third-quarter results that missed profit expectations and signaled weakening demand for its luxury homes.
The company's adjusted earnings per share of $4.58 fell short of analyst estimates of $4.88. While revenue of $3.42 billion came in ahead of forecasts and grew 2.7% year over year, investors focused on signs of a slowdown. A key concern was the company's backlog of homes to be built, which decreased by 15% year over year to $5.5 billion. A declining backlog can indicate that a company is not securing enough new orders to maintain its growth rate. This, combined with the earnings miss, suggested that demand for new homes was weakening, overshadowing the revenue beat for the quarter.
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What Is The Market Telling Us
Toll Brothers’s shares are somewhat volatile and have had 12 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 5 months ago when the stock gained 7.9% on the news that peer, D.R. Horton reported strong quarterly results. The positive sentiment lifted the entire homebuilding sector after D.R. Horton, delivered strong third-quarter results that surpassed analyst expectations. This news appeared to overshadow broader concerns about the housing market, which included reports of stubbornly high mortgage rates and a potential slowdown.
Toll Brothers is up 7.7% since the beginning of the year, but at $134.15 per share, it is still trading 14.3% below its 52-week high of $156.47 from December 2024. Investors who bought $1,000 worth of Toll Brothers’s shares 5 years ago would now be looking at an investment worth $3,050.
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