Ah, the real estate market. What can be made of it? Is it an overinflated bubble ready to burst, much like the dot-com stocks a few years back? Or, is it truly a new paradigm (which is exactly what many "experts" said about the dot-com era) brought on by a sustained period of low interest rates with an old twist of demand outpacing supply? Well, folks, I just don't know. If you want my non-expert opinion, I'd lean toward a slow leak rather than a sudden burst. But, a look at the latest earnings for Toll Brothers
For its fiscal 2005 first quarter, Toll Brothers' net income soared to $110.2 million, or $1.33 per share. That's more than double last year's $50.1 million, or $0.62 per share. Those results demolished analysts' expectations of $1.15 per share. Revenues expanded 67% to finish the quarter at just under $1 billion.
OK, so there was a plethora of good news for the company, but it can't possibly keep up at this pace, can it? Can it? The good thing about housing companies is that we can quickly get a feel for what the near-term future holds. At the end of the quarter, Toll Brothers had a backlog of $4.89 billion, or 7,292 homes. That's a 66% increase over the company's previous record backlog of $2.95 billion, or 5,079 homes. The luxury home builder also controls 63,000 home sites (many in desirable locations where land is hard to come by), which works out to a supply that should last for five to six years based on the historical pace of expansion.
Based on its strong performance and higher home delivery projections, Toll Brothers raised its full-year expectations. The company now expects 60% growth in net income, up from the already impressive projection of 40% growth.
While I still believe this rate of growth can't go on forever and I'm sure I'll be right eventually, you may miss out on a great company waiting for that eventuality. With demand continuing to outpace supply, Toll Brothers seems well-positioned for continued expansion in the near term.
Fool contributor Mike Cianciolo welcomes feedback and doesn't own shares of Toll Brothers.