The Zacks analyst blog highlights Toll Brothers, Lennar, NVR and D.R. Horton

Toll Brothers +29% in three months: How to play the stock now

Toll Brothers, Inc. has delivered an impressive rally, with shares climbing 29.3% in the past three months. This surge outpaced the 27.9% gain in the Zacks Building Products – Home Builders industry, the broader Zacks Construction sector's 11.3% increase, and the S&P 500's more modest 8.6% rise.

At its current price of $144.82 (as of Sept. 9, 2025), the stock trades 14.6% below its 52-week high of $169.52 but still represents a 67.1% premium to its 52-week low of $86.67. The recovery underscores investor confidence in the company's fundamentals despite industry headwinds.

Toll Brothers has surpassed peers like Lennar and NVR, Inc., but lagged D.R. Horton, with each advancing 23.2%, 13.4%, and 42.5%, respectively, over the same period.

Technical picture of TOL stock: Momentum turning up

The stock's technical setup adds confidence to its near-term outlook. Toll Brothers' current price of $144.82 sits well above both its 50-day simple moving average (SMA) of $127.43 and its 200-day SMA of $120.02. This bullish crossover signals strengthening momentum after a prolonged downturn earlier in 2025. The move above both averages suggests that the recent 29% rally is not just a short-term bounce but part of a broader trend reversal.

Volume has also been steady, with more than 2.3 million shares traded recently, reinforcing institutional interest. From a technical perspective, the stock has room to retest its 52-week high near $169 if positive sentiment persists.

TOL's driving factors supporting the rally

Luxury Market Strength and Pricing Power: Toll Brothers continues to stand out in the luxury homebuilding segment, where customer resilience is a differentiating factor. In the third quarter of fiscal 2025, the builder delivered 2,959 homes with an average selling price (ASP) of $974,000, a figure significantly higher than mass-market peers. Its backlog, averaging $1.16 million per home, reflects buyers' willingness to pay premiums for upgrades and prime lots. Importantly, 26% of customers paid all cash, and financed buyers maintained healthy 70% loan-to-value ratios, underscoring the affluent customer base's financial strength. This high-end positioning has insulated Toll Brothers from affordability concerns that plague mid-tier builders.

The company's land pipeline also adds visibility to growth. With 76,800 lots (57% controlled), Toll Brothers has secured a strategic advantage. Its community count stood at 420 in the fiscal third quarter and is projected to reach 440–450 by year-end, implying 8–10% growth.

Balanced Spec and build-to-order model: The shift toward a 50-50 mix of spec and build-to-order homes has provided Toll Brothers with strategic flexibility. Spec homes allow sales at different construction stages, supporting faster cycle times and customization. Meanwhile, build-to-order preserves higher margins, particularly for premium lots. This mix contributed to an adjusted gross margin of 27.5% in the fiscal third quarter, which exceeded guidance. Though margins remain below last year's 28.8%, the model provides resilience in a competitive environment where finished specs occasionally require higher discounts.

Toll Brothers' focus on margins over sales pace continues to differentiate it. SG&A leverage improved to 8.8% of revenues in the quarter, beating guidance, while construction cycle times shortened, with 35% of communities able to build in eight months or less. Technology investments in ERP and CRM systems have streamlined operations, supporting cost discipline and profitability. Management's ability to balance efficiency while scaling community growth reflects a disciplined approach to expansion.

Financial strength and shareholder returns: The company ended the fiscal third quarter with $852 million in cash, $2.2 billion in revolver capacity, and a net debt-to-capital ratio of just 19.3%. Toll Brothers also returned $226 million to shareholders in the quarter through dividends and buybacks, and is on track to repurchase $600 million of stock in fiscal 2025. Coupled with an expected $1 billion in operating cash flow, these metrics underscore the company's strong financial position.

Factors that may halt the rally for Toll Brothers

Softer Sales Volumes and Incentive Pressure: Despite record revenues, net contracts fell 4% year over year in units during the fiscal third quarter, highlighting a softer housing market. Incentives averaged 8% in new contracts, up from 7% in the prior quarter, reflecting increased discounting on finished spec homes. While margins remain solid, they are trending lower, signaling challenges in sustaining peak profitability.

Toll Brothers' gross margins, while still healthy at 27.5%, have trended down from 28.8% a year earlier. This reflects both higher incentives for completed spec homes and ongoing pressures in certain markets. The reliance on a 50-50 spec mix, although strategically flexible, makes the company more exposed to market-driven discounting when inventory must be moved quickly. The sensitivity of margins to external conditions underscores the difficulty in sustaining peak profitability.

Land and development cost pressures: Despite a strong land pipeline, management noted that relief on development costs has been limited. Unlike building costs, which are beginning to stabilize or decline modestly, land development expenses remain sticky. Given the company's capital-intensive growth strategy, high land spend—$433 million in the fiscal third quarter alone—combined with stubborn development costs, could weigh on returns if market conditions soften further.

Macroeconomic challenges: Elevated but moderating mortgage rates remain a key factor. Mortgage rates have been hovering around 6.5% and affordability remains constrained for many buyers, leading to slower decision-making and greater reliance on incentives. Broader economic uncertainty also weighs on sentiment, with prospective customers hesitant to commit until they feel more confident about the direction of the economy. Inflationary pressures and tariffs were flagged as potential risks, though the company said it has not yet seen material cost escalation from tariffs and even anticipates modest declines in build costs.

TOL stock's estimate revisions and outlook

Analyst sentiment has softened. Toll Brothers' EPS estimate for fiscal 2025 has slipped to $13.82 from $13.86 in the past week, while fiscal 2026 estimates declined to $14.04 from $14.20. Fiscal 2025 earnings are expected to decline 7.9% year over year before rebounding modestly in 2026. Revenue growth is forecasted at just 0.1% annually for both years, suggesting limited near-term upside.

Toll Brothers' valuation: Bargain in the industry

On valuation, Toll Brothers looks inexpensive relative to peers. Its forward 12-month P/E stands at 10.34X, compared with the industry average of 13.35X. The company's five-year range is 3.80–15.41X, with a median of 7.70X. Current pricing suggests the stock trades at a reasonable discount, leaving room for upside if fundamentals remain intact.

It is also trading at a discount compared with big industry players like D.R. Horton, Lennar and NVR. DHI, LEN and NVR are trading with forward 12-month P/E multiples of 14.79, 14.23 and 19.58, respectively.

Conclusion

Toll Brothers has delivered strong gains, supported by luxury market strength, efficient operations, and a solid balance sheet. Yet, softer sales volumes, margin pressure from incentives and sticky land costs present challenges. With estimates trending slightly lower and modest revenue growth ahead, the near-term upside appears limited.

Given its relative valuation and financial strength, Toll Brothers remains a stable play within the homebuilder group. Investors should hold the stock, which currently carries a Zacks Rank #3 (Hold), and monitor how easing rates and community growth translate into future demand. 

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