TOLL BROTHERS INC (NYSE:TOL) - A Strong Contender for GARP Investors

TOLL BROTHERS INC (NYSE:TOL) stands out as a potential candidate for investors seeking growth at a reasonable price (GARP). The company, a leading luxury homebuilder in the U.S., meets key criteria from Peter Lynch’s investment strategy, balancing solid growth with sound financial health and an attractive valuation.

Why TOL Fits the GARP Approach

• Strong Earnings Growth: Over the past five years, TOL has delivered an impressive average annual EPS growth of 27.96%, well above the 15% threshold in Lynch’s strategy. This signals consistent profitability.
• Reasonable Valuation: With a PEG ratio of 0.28 (far below the preferred maximum of 1), the stock appears undervalued relative to its growth potential. The P/E ratio of 7.73 further supports this.
• Healthy Financials: The company maintains a debt-to-equity ratio of 0.35, indicating a conservative capital structure. Its current ratio of 3.83 reflects strong liquidity to cover short-term obligations.
• High Profitability: TOL’s return on equity (ROE) of 19.36% exceeds the 15% benchmark, demonstrating efficient use of shareholder capital.

Fundamental Snapshot

Our fundamental analysis report rates TOL 6 out of 10, highlighting its strong profitability and reasonable valuation. Key takeaways:

• Profitability: Scores 8/10, with industry-leading margins (14.03% net margin) and robust ROIC (13.82%).
• Financial Health: Scores 6/10, supported by a solid Altman-Z score (3.93) and manageable debt levels.
• Growth Outlook: While past growth has been strong, future EPS growth is expected at 9.84% annually, indicating a more moderate but sustainable pace.

For investors aligned with Lynch’s principles, TOL offers a mix of growth, financial stability, and an attractive entry point.

Our Peter Lynch Strategy screener lists more stocks matching these criteria and is updated daily.

Disclaimer

This is not investing advice! The article highlights observations at the time of writing, but you should always conduct your own analysis before making investment decisions.