Whether you think it's highly overvalued or the best long-term investment people can make, you have to love the real estate market. Because both arguments are correct, depending on your perspective. While land is literally being given away in parts of Kansas and Nebraska, in other parts of the country, many potential buyers can't afford a home as prices continue their historic climb. To complicate matters further, the latest reports showed existing home sales fell more than expected, but new home sales rose more than expected.
Luckily for Toll Brothers
Actually, it was yet another quarter in which Toll Brothers blew the roof off, easily surpassing results from a year ago. For its fiscal third quarter, the luxury home builder earned $215.5 million, or $1.27 per share, doubling last year's $106 million, or $0.66 per share. Also, revenue improved 54% to $1.56 billion. The company not only increased its closings by 55% in the quarter but also increased the value of its homes by 19%.
With home builders, we're fortunate to have the ability to get a glimpse into the future. A quick look at the company's backlog (units sold, but not delivered) reveals more good times likely lie ahead, since it increased its backlog 38% to 9,490 homes. While that's certainly a good sign, should the market turn, many of those buyers could potentially back out. As orders rise, its homes continue to increase in value. For fiscal 2006, it expects its homes to sell at an average price of $665,000.
Despite the gains and projected growth, Toll Brothers was pushed nearly 4% lower yesterday. Investors are becoming more concerned about being left out in the cold should the bubble burst. Feeling satisfied with gains of more than 120% in the past year, many investors felt the risk was getting too great to justify staying put. I should mention that the company's management had already started this process, selling more than 5.6 million shares over the past six months.
I can't say what's going to happen with this market, which includes other builders such as D.R. Horton
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Fool contributor Mike Cianciolo is waiting anxiously to see how this story ends and doesn't own shares of Toll Brothers.