Toll Brothers (TOL): Today's Weak On High Volume Stock

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer.

Trade-Ideas LLC identified Toll Brothers ( TOL) as a weak on high relative volume candidate. In addition to specific proprietary factors, Trade-Ideas identified Toll Brothers as such a stock due to the following factors:

  • TOL has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $97.2 million.
  • TOL has traded 1.0 million shares today.
  • TOL is trading at 6.72 times the normal volume for the stock at this time of day.
  • TOL is trading at a new low 3.03% below yesterday's close.

'Weak on High Relative Volume' stocks are worth watching because major volume moves tend to indicate underlying activity such as material stock news, analyst downgrades, insider selling, selling from 'superinvestors,' or that hedge funds and traders are piling out of a stock ahead of a catalyst. Regardless of the impetus behind the price and volume action, when a stock moves with strength and volume it can indicate the start of a new trend on which early investors can capitalize (or avoid losses by trimming weak positions). In the event of a well-timed trading opportunity, combining technical indicators with fundamental trends and a disciplined trading methodology should help you take the first steps towards investment success.

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More details on TOL:

Toll Brothers, Inc., together with its subsidiaries, designs, builds, markets, and arranges finance for detached and attached homes in luxury residential communities in the Unites States. It is also involved in building and selling homes in urban infill markets. TOL has a PE ratio of 19. Currently there are 3 analysts that rate Toll Brothers a buy, 2 analysts rate it a sell, and 7 rate it a hold.

The average volume for Toll Brothers has been 2.5 million shares per day over the past 30 days. Toll Brothers has a market cap of $6.6 billion and is part of the industrial goods sector and materials & construction industry. The stock has a beta of 1.15 and a short float of 4% with 2.33 days to cover. Shares are up 7.9% year-to-date as of the close of trading on Tuesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Toll Brothers as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, increase in stock price during the past year, impressive record of earnings per share growth and good cash flow from operations. We feel its strengths outweigh the fact that the company shows low profit margins.

Highlights from the ratings report include:

  • The revenue growth came in higher than the industry average of 7.9%. Since the same quarter one year prior, revenues rose by 30.8%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The debt-to-equity ratio is somewhat low, currently at 0.85, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
  • TOLL BROTHERS INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. During the past fiscal year, TOLL BROTHERS INC increased its bottom line by earning $1.84 versus $0.97 in the prior year. This year, the market expects an improvement in earnings ($2.10 versus $1.84).
  • Net operating cash flow has significantly increased by 86.80% to -$33.05 million when compared to the same quarter last year. In addition, TOLL BROTHERS INC has also vastly surpassed the industry average cash flow growth rate of -74.09%.

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