Toll Brothers (TOL), a U.S. luxury homebuilder, reported its fiscal 2014 earnings on December 12. Earnings continue to rebound in line with the recovery of the U.S. economy and American home prices.
TOL’s adjusted earnings doubled in fiscal 2014 and revenues per share were up 40%. Based on a recent price of $35.18, the p/e ratio is 18.7, the price to book ratio is 1.69, and return on equity (ROE) is 9.75%.
The profit outlook is for modest growth in the next year as contracts signed in 2014 for houses to be completed mostly in 2015 were flat in units compared to those signed in the previous year. However, they were up somewhat in price. There is a lag of over one year before signed contracts become home sales.
Management appears to believe that the flat performance for signed contracts in 2014 was just a pause in a long-term growth trend and notes that growth in signed contracts did resume in the final quarter of the year and into early fiscal 2015. Management expects an increase in signed deals in 2015, which would lead to an increase in profits in 2016 as those homes are completed and delivered.
Buy for medium term growth.
Gordon Pape and Shawn Allen, The Internet Wealth Builder, www.buildingwealth.ca, 1-888-287-8229, January 12, 2015
