Sharp rise in average sales price
At the end of fiscal 2014, Toll Brothers (TOL) had 263 active communities, compared to 232 in 2013 and 224 in 2012. Most of these communities were composed of luxury homes at up-market price points.
The sales price of units closed or delivered during 2014 was $725,000, up by 13.5% from 2013. This is the highest sales price increase Toll Brothers has witnessed in the past three years.
In fiscal 2010, 2011, and 2013, the company’s average selling price remained stagnant in the range of $565,000–$573,000. It has increased sharply since then.
The rise in the average sales price of homes delivered in recent years, especially in 2014, is primarily attributable to an uptick in the number of homes delivered to more expensive areas.
Comparing Toll Brothers to its peers
Toll Brothers’ (TOL) average sales are on the higher end of the price point compared to competitors like D.R. Horton (DHI), Lennar (LEN), PulteGroup (PHM), and KB Home (KBH), which mainly provide single-family attached and detached homes to their customers.
Compared to its competitors, Toll Brothers (TOL) has a much lower home closing rate, at 5,397 in fiscal 2014, but a much higher average sales price of $725,000 in fiscal 2014. During the same period, PulteGroup (PHM) delivered 17,196 homes at an average price of $329,000, while D.R. Horton (DHI) delivered 28,670 homes at an average price of $272,200.
Consulting these numbers, we can see that Toll Brothers (TOL) has very little competition in the luxury market segment. The company’s major primary competitors are small- and mid-sized private builders.
Investors looking for diversification in the homebuilding sector can consider ETFs like the SPDR S&P Homebuilders ETF (XHB) and the iShares US Home Construction ETF (ITB). Toll Brothers (TOL) forms 7.78% holdings of the Shares US Home Construction ETF (ITB).
In the next part of this series, we’ll discuss Toll Brothers’ revenue growth.