Is Toll Brothers, Inc. (NYSE:TOL) Potentially Undervalued?

Toll Brothers, Inc. (NYSE:TOL), which is in the consumer durables business, and is based in United States, saw a decent share price growth in the teens level on the NYSE over the last few months. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. But what if there is still an opportunity to buy? Let’s examine Toll Brothers’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Check out our latest analysis for Toll Brothers

What's the opportunity in Toll Brothers?

Toll Brothers appears to be overvalued by 41% at the moment, based on my discounted cash flow valuation. The stock is currently priced at US$44.64 on the market compared to my intrinsic value of $31.61. This means that the opportunity to buy Toll Brothers at a good price has disappeared! Furthermore, Toll Brothers’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. If you believe the share price should eventually reach its true value, a low beta could suggest it is unlikely to rapidly do so anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range.

What does the future of Toll Brothers look like?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. Though in the case of Toll Brothers, it is expected to deliver a relatively unexciting earnings growth of 3.7%, which doesn’t help build up its investment thesis. Growth doesn’t appear to be a main reason for a buy decision for the company, at least in the near term.

What this means for you:

Are you a shareholder? It seems like the market has well and truly priced in TOL’s future outlook, with shares trading above its fair value. However, this brings up another question – is now the right time to sell? If you believe TOL should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on TOL for some time, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the positive outlook means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Toll Brothers. You can find everything you need to know about Toll Brothers in the latest infographic research report. If you are no longer interested in Toll Brothers, you can use our free platform to see my list of over 50 other stocks with a high growth potential.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.