Toll Brothers (TOL)

Homebuilding company Toll Brothers (NYSE:TOL) reported Q2 CY2025 results topping the market’s revenue expectations, with sales up 8% year on year to $2.95 billion. Its non-GAAP profit of $3.73 per share was 3.8% above analysts’ consensus estimates.

Company Overview

Started by two brothers who started by building and selling just one home in Pennsylvania, today Toll Brothers (NYSE:TOL) is a luxury homebuilder across the United States.

Traditionally, homebuilders have built competitive advantages with economies of scale that lead to advantaged purchasing and brand recognition among consumers. Aesthetic trends have always been important in the space, but more recently, energy efficiency and conservation are driving innovation. However, these companies are still at the whim of the macro, specifically interest rates that heavily impact new and existing home sales. In fact, homebuilders are one of the most cyclical subsectors within industrials.

Competitors of Toll Brothers include D.R. Horton (NYSE:DHI), Lennar (NYSE:LEN), and PulteGroup (NYSE:PHM).

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Luckily, Toll Brothers’s sales grew at a solid 9.5% compounded annual growth rate over the last five years. Its growth beat the average industrials company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Toll Brothers’s recent performance shows its demand has slowed as its revenue was flat over the last two years.

Toll Brothers also reports its backlog, or the value of its outstanding orders that have not yet been executed or delivered. Toll Brothers’s backlog reached $6.38 billion in the latest quarter and averaged 6.3% year-on-year declines over the last two years. Because this number is lower than its revenue growth, we can see the company hasn’t secured enough new orders to maintain its growth rate in the future.

This quarter, Toll Brothers reported year-on-year revenue growth of 8%, and its $2.95 billion of revenue exceeded Wall Street’s estimates by 3.1%.

Looking ahead, sell-side analysts expect revenue to decline by 1.3% over the next 12 months, a slight deceleration versus the last two years. This projection is underwhelming and indicates its products and services will see some demand headwinds.

For industrials businesses, cost of sales is usually comprised of the direct labor, raw materials, and supplies needed to offer a product or service. These costs can be impacted by inflation and supply chain dynamics in the short term and a company’s purchasing power and scale over the long term.

Toll Brothers has bad unit economics for an industrials company, giving it less room to reinvest and develop new offerings. As you can see below, it averaged a 25.5% gross margin over the last five years. That means Toll Brothers paid its suppliers a lot of money ($74.50 for every $100 in revenue) to run its business.

Toll Brothers produced a 25.2% gross profit margin in Q2, down 2.4 percentage points year on year. Toll Brothers’s full-year margin has also been trending down over the past 12 months, decreasing by 2.4 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs (such as raw materials and manufacturing expenses).

Toll Brothers has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 15.9%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Analyzing the trend in its profitability, Toll Brothers’s operating margin rose by 6 percentage points over the last five years, as its sales growth gave it immense operating leverage.

This quarter, Toll Brothers generated an operating margin profit margin of 16.6%, down 2 percentage points year on year. Since Toll Brothers’s gross margin decreased more than its operating margin, we can assume its recent inefficiencies were driven more by weaker leverage on its cost of sales rather than increased marketing, R&D, and administrative overhead expenses.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Toll Brothers’s EPS grew at an astounding 32.7% compounded annual growth rate over the last five years, higher than its 9.5% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into Toll Brothers’s quality of earnings can give us a better understanding of its performance. As we mentioned earlier, Toll Brothers’s operating margin declined this quarter but expanded by 6 percentage points over the last five years. Its share count also shrank by 22.2%, and these factors together are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Toll Brothers, its two-year annual EPS declines of 1.4% mark a reversal from its (seemingly) healthy five-year trend. We hope Toll Brothers can return to earnings growth in the future.

In Q2, Toll Brothers reported adjusted EPS of $3.73, up from $3.64 in the same quarter last year. This print beat analysts’ estimates by 3.8%. Over the next 12 months, Wall Street expects Toll Brothers’s full-year EPS of $13.61 to grow 3.1%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Toll Brothers has shown robust cash profitability, enabling it to comfortably ride out cyclical downturns while investing in plenty of new offerings and returning capital to investors. The company’s free cash flow margin averaged 10.7% over the last five years, quite impressive for an industrials business.

Taking a step back, we can see that Toll Brothers’s margin dropped by 6.5 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although Toll Brothers hasn’t been the highest-quality company lately, it historically found a few growth initiatives that worked. Its five-year average ROIC was 14%, higher than most industrials businesses.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. On average, Toll Brothers’s ROIC increased by 4.9 percentage points annually over the last few years. This is a good sign, and we hope the company can keep improving.

Toll Brothers reported $852.3 million of cash and $2.94 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.85 billion of EBITDA over the last 12 months, we view Toll Brothers’s 1.1× net-debt-to-EBITDA ratio as safe. We also see its $26.01 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing Toll Brothers beat analysts’ revenue expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. On the other hand, its backlog, which is a key leading revenue indicator, missed. Zooming out, we think this was a mixed quarter. The market seemed to be hoping for more, and the stock traded down 1.7% to $130 immediately after reporting.

Updated: December 4, 2025 at 10:40 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Toll Brothers.

Toll Brothers isn’t a terrible business, but it isn’t one of our picks. Although its revenue growth was solid over the last five years, it’s expected to deteriorate over the next 12 months and its projected EPS for the next year is lacking. And while the company’s expanding operating margin shows the business has become more efficient, the downside is its cash profitability fell over the last five years.

Toll Brothers’s P/E ratio based on the next 12 months is 10.5x. This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $152.40 on the company (compared to the current share price of $141.55).