Is There Opportunity in Toll Brothers After Recent Share Price Drop?

Trying to decide whether to buy, hold, or sell Toll Brothers right now? You’re definitely not alone. Few stocks in the homebuilding space have drawn as much buzz as Toll Brothers in recent years, and with good reason. Even as the broader market has shifted and headlines have swirled about mortgage rates, Toll Brothers has put up some eye-catching long-term returns. The share price has gained 217.4% in the last three years and increased 177.9% over five years. If you’ve checked the ticker lately, you’ve also noticed the slide: down 10.8% this past week and off 11.1% over the last month. Year-to-date, the stock is barely in the green, up just 2.2%.

What’s driving these sharp moves? Investors have been wrestling with shifting expectations around the U.S. housing market as interest rates, affordability concerns, and the changing landscape for new home construction have all played a role. Lately, increased talk about future Federal Reserve rate cuts has re-injected optimism, but short-term volatility shows that confidence is still on shaky ground. Longer-term, Toll Brothers has weathered plenty, but the question now is how to interpret the recent dip, and whether it is a warning sign or a potential buying opportunity for value-focused investors.

Speaking of value, let's get right to the heart of it: Toll Brothers currently scores a robust 5 out of 6 on our valuation check, signaling that it is undervalued on nearly every major metric we track. In the next section, I will break down exactly how we arrive at that score and explore why a one-size-fits-all valuation approach sometimes falls short. There is an even better way to assess worth further ahead.

Why Toll Brothers is lagging behind its peers

Approach 1: Toll Brothers Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model is a tried-and-true method for estimating a company’s intrinsic value by forecasting its future cash flows and then discounting them back to today’s dollars. Put simply, it asks: what are all the dollars Toll Brothers could generate down the line really worth if you had them now?

For Toll Brothers, the current Free Cash Flow is $920.3 Million. Analysts expect cash flow growth in the years ahead, with projections rising to $1.83 Billion by 2026 and $1.53 Billion in 2027. Beyond those analyst estimates, further cash flow is extrapolated, tapering gradually to $1.26 Billion by 2035. All figures are based on the 2 Stage Free Cash Flow to Equity method and expressed in US dollars. This robust trajectory helps power the DCF’s verdict.

Taking these projections into account, the DCF model calculates an intrinsic fair value of $193.40 per share for Toll Brothers. That price tag is roughly 34.2% higher than where shares currently trade. According to this model, the stock appears to be meaningfully undervalued given these assumptions.

Result: UNDERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Toll Brothers.

Our Discounted Cash Flow (DCF) analysis suggests Toll Brothers is undervalued by 34.2%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: Toll Brothers Price vs Earnings

For a consistently profitable company like Toll Brothers, the Price-to-Earnings (PE) ratio is a highly relevant valuation tool. The PE ratio quickly summarizes how much investors are willing to pay for every dollar of current earnings, making it especially useful when those earnings are both strong and stable.

What counts as a "normal" or "fair" PE depends largely on expectations. Faster earnings growth often justifies a higher multiple, while higher perceived risk or weaker growth outlook tends to suppress it. That is why context matters when interpreting what any single PE actually tells us about value.

Currently, Toll Brothers is trading at a PE of 8.92x. For context, that sits well below the industry average for Consumer Durables at 10.25x, and considerably lower than the peer group average of 12.34x. That looks cheap, but headline multiples can sometimes be misleading if the company’s growth outlook or risk profile differs.

This is where Simply Wall St’s “Fair Ratio” provides a more nuanced benchmark. The Fair Ratio for Toll Brothers is calculated based on a blend of important fundamentals: projected earnings growth, risk, margins, company size, and broader industry factors. This tailored approach recognizes that the right multiple for Toll Brothers might differ from the crowd, factoring in the company’s unique position and prospects.

Compared to the Fair Ratio of 17.11x, the stock’s actual PE of 8.92x suggests it is trading well below what would be reasonable given its earnings power and profile. In this case, the market appears to be discounting Toll Brothers more than its fundamentals warrant.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Toll Brothers Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is simply your own story and perspective about a company, how you see its future, what key changes or risks you believe matter most, and how all of that connects to forecasts for future revenue, earnings, and ultimately, estimated fair value. Narratives seamlessly link Toll Brothers’ unique business story to a transparent, numbers-driven financial forecast, making it easier to see how real-world developments affect investment potential.

Narratives are easy to create and access on Simply Wall St’s Community page, where millions of investors share and update their viewpoints. They help you decide when to buy or sell by comparing your fair value estimate with the latest share price in real time. Plus, because Narratives update when new news or earnings arrive, your outlook always reflects the latest facts. For example, some investors see Toll Brothers as set for long-term growth with a bullish price target of $183, thanks to luxury market tailwinds and new communities, while others focus on risks from falling orders or rising costs and reflect that in a more cautious $92 forecast. Narratives make these perspectives visible, helping you decide with confidence.

Do you think there's more to the story for Toll Brothers? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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