After reaching a peak of euphoria in 2020 and 2021, the new-home market is still down for the fourth consecutive year.
Positioned in the high-end segment, Toll sells far lower volumes than peers such as D.R. Horton, Lennar, or NVR, although at typically higher unit prices.
However, over the past 12 months volumes have shown a significant increase, accompanied by a decline in the average price per unit.
The steepest drop concerns land prices, an infallible sign that demand remains sluggish. This segment is costing Toll Brothers several margin points this year.
These cyclical issues are not new and do not tarnish the group's exceptional growth trajectory, however. Over the past decade, thanks to robust share repurchases, Toll Brothers has multiplied its EPS by six, while revenue merely doubled.
The sector has also continued to consolidate since the end of the subprime crisis. The dominance of publicly listed large homebuilders has thus doubled, now exceeding half of the market.
In parallel, the premium between new-home value and existing-home value has completely closed, even as the average age of inventory in the latter category keeps rising.
Once again, in 2025, Toll Brothers directed most of its free cash flow toward share buybacks, with 5.4 million shares retired at an average price of $120.4.
This highly optimal capital allocation continues to reassure investors. The group's valuation is thus more or less aligned with its historical multiples, and the rebound from the lows hit in 2023 is therefore fully priced in.
