Brad Thomas
Founder & Lead Analyst of Wide Moat Research
Toll Brothers is priced like an old-school cyclical homebuilder despite becoming an increasingly capital-efficient luxury brand with strong earnings growth. It trades at 10.5x earnings versus a historical norm of about 17.5x. EPS has compounded 18.8% a year since 2016, consensus sees 9% growth in 2027 and 15% in 2028, and dividends have compounded 17.6% since 2017. It is more asset-light, with 57% of controlled lots optioned versus 38% in 2019. x.comÂ
Toll Brothers is the better buy from today's price than NVR because it is becoming more capital-light while trading far cheaper. Toll controls 57% of lots through options versus 20% a decade ago, trades around 10x forward earnings and 1.5x book against NVR's 16x and 4.7x, and earns high-teens ROE. Its luxury model gives it an edge, with 25% of buyers paying cash. @porterstansb counters that Toll's 20-year returns trail NVR's and it hasn't earned its cost of capital. x.com x.com x.com x.comÂ
Sherwin-Williams looks fully valued at 24x earnings on a normalized housing market, leaving returns dependent on the multiple. Store count grows only about 2% on a 4,800 base as penetration matures; with roughly 2% comps at a 30% incremental EBITDA margin, EBITDA grows about 6%. It is a great business with low disruption risk, but higher-beta housing stocks should deliver better returns if the cycle normalizes. x.com x.com x.comÂ
Berkshire Hathaway's purchase of Taylor Morrison is a big win even after a 24% premium, because the price is still about 10x earnings. That is $72.50 a share against current EPS of $6.70, a good job by Greg Abel. Jim Cramer's suggestion that Berkshire put Clayton prefab homes on all of Taylor Morrison's land is the big idea. x.com x.comÂ
