Toll Brothers Backlog Slides as Analysts See Revenue Stalling

Toll Brothers shares fell to $133.28 over the past six months, marking a 10.1% loss that contrasts with the S&P 500's 8.9% gain. While the lower price point might suggest a buying opportunity, recent financial indicators point to persistent operational challenges for the homebuilder.

Backlog serves as a key indicator for home builders, reflecting the value of outstanding orders that have not yet been delivered. In the latest quarter, Toll Brothers reported a backlog of $6.24 billion. This figure follows two years of annual declines averaging 8.1%, a trend that suggests the company is struggling to secure new orders. The data implies potential issues with market saturation or intensifying competition.

Revenue forecasts from sell-side analysts further cloud the outlook. Over the next 12 months, analysts expect Toll Brothers' revenue to stall, closely mirroring its 5.3% annualized growth rate over the past five years. This projection indicates that newer products and services have not yet translated into improved top-line performance.

Profitability trends reinforce these concerns. Over the last two years, Toll Brothers' earnings per share declined by 8.1% annually, even as revenue grew by just 1.1%. This divergence shows the company became less profitable on a per-share basis during its expansion period.

Despite these headwinds, Toll Brothers remains a functional business rather than a distressed one. Following the recent price drop, the stock trades at a forward P/E of 9.8 times, or $133.28 per share. While this valuation appears cheap on the surface, the shaky fundamentals present significant downside risk. Analysts argue that other investments offer better potential returns than TOL.

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