Toll Brother’s missed earnings expectations. The stock is down 4%. Contracts were down 5% from Q3 and backlog was down 8%. This is in a housing market which is being supported by near-record low mortgage rates. Interestingly, despite a huge increase in reported average price per unit, Toll’s gross margin – revenues less cost of revenues – were flat. One would think that, ceteris paribus, Toll’s gross margin should be soaring.

Something smells rotten and I have feeling that Toll engaged in massive discounting to try and move some of its gargantuan inventory. The discounts were probably accrued into cost of revenues so that Toll could report a lofty average price per unit. Toll is going to have problems next year, as its debt to capital ratio jumped up to 41% from 32% last year…(click to enlarge):

The DJ Home Construction index is now down over 4% from its high-close weeks ago. I have five stock reports which will help you take advantage of an insanely overvalued housing market: Homebuilder Stock Reports.

I believe the company in my latest report will be bankrupt in 2 years. My reports detail the misleading accounting these companies use and show why they are not really making even close to the amount of money they claim using phony GAAP accounting standards. I also have suggested options trades.

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