Last week, Toll Brothers Inc (TOL) chairman and CEO Bob Toll sold 791,000 shares from his vast portfolio of TOL stock. He still owns nearly 16 million shares or close to 10% of the company’s stock, but he has a history of lightening up at the opportune time. He has sold about $50 million worth of stock this year. I can’t say that I blame him, as frequent readers of this blog are aware, at Ockham we believe that Toll Brothers is Overvalued. Fundamentally speaking, there is not much to like about this stock as they continue to write-down the value of their assets and sales remain sluggish. However, housing market bulls have bid up this stock in anticipation of a recovery.
The Wall Street Journal brought this story to our attention,
“Mr. Toll spoke encouragingly about the housing market Aug. 27 in presenting results for the company’s fiscal third quarter ended July 31. The company reported a loss of $472.3 million for the quarter, largely reflecting write downs of asset values, but Mr. Toll said: “We believe declining cancellations and more solid demand indicate that the housing market is stabilizing.”
In a conference call with investors, he said stronger housing demand in recent months “makes us feel a whole lot better.” In response to questions about the outlook for the economy and further waves of foreclosures, however, he said Toll hadn’t purchased much land recently. “So while we’re optimistic,” he said, “we’re also unwilling to make bets on the future being much different than the current market.””
There is no doubt that Mr. Toll still has a lot of wealth tied to TOL stock, and it is his right to do with that stock as he pleases. After all, he and his brother have built the company from the ground up since 1969. The article quotes a spokesperson for the firm says that he is simply diversifying his personal holdings, which he said is “prudent”. That is a fair statement to be sure, and like we said, we would probably do the same thing.
That being said, his actions are speaking louder than his conference call words. Mr. Toll may be optimistic about what is ahead for TOL, but an argument could be made that $50 million in sales this year give the appearance that he believes the fundamentals do not support the price currently. Earnings estimates are improving for TOL (though still negative through the next fiscal year), and the stabilization of housing is a welcome development. However, we are reiterating our Overvalued stance on TOL stock, as we are for most other homebuilders. There is still too much supply in the marketplace to make homebuilding a sector we would want to be investing in.
