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Toll Brothers: Overvalued or Room for Growth?

Toll Brothers, the nation's largest home builder, on Tuesday posted strong earnings for the fourth quarter, leading the CNBC "Fast Money" traders to disagree about whether the stock was overvalued or still had room for growth.

Stephen Weiss of Short Hills Capital explained what informed his view: "Valuation, pure and simple."

While Toll Brothers was being valued around three times book value, historically it has peaked around two and a half times that.

"The question is what do you pay for it. I don't pay what the stock is selling for right now because it's egregiously overvalued," he said. "I'd rather buy banks."

Add to that supply being added to the housing market and the possibility of an end to the mortgage deduction amid budget negotiations in Washington, and Weiss wasn't a buyer.

"I think the stock's gotten ahead of itself," he said, adding that he hasn't called Toll Brothers correctly in the past. "I'm counting on a dog having its day."

Rosecliff Capital's Mike Murphy noted that the stock had already seen a pull-back, trading about 15 percent off its peak.

What he liked about Toll Brothers was its performance over the last four quarters, as well as the company's estimates of revenue growth of more than 20 percent for 2013.

"There's nothing about Toll Brothers right now that isn't working," he said. "Any metric you want to use to measure these guys, they're doing a great job."

Joe Terranova of Virtus Investment Partners agreed with Weiss.

"This was a strong earnings report. The stock is trading terrible today. It is pulling back from the highs. The Street does not believe the story," he said. "You have not had the analysts come out today and upgrade the stock and raise the price targets. The valuation is full. The story is known. The housing recovery is here. Prices are going up. But Toll Brothers is not responding anymore to that."

Added Murphy, "That's why you buy here."

Trader disclosure: On Dec. 4, 2012, the following stocks and commodities mentioned or intended to be mentioned on CNBC's "Fast Money" were owned by the "Fast Money" traders: Joe Terranova is long VRTS; Joe Terranova is long TJX; Joe Terranova is long AAPL; Joe Terranova is long YUM; Joe Terranova is long SWN; Joe Terranova is long GLW; Joe Terranova is long DELL; Joe Terranova is long VZ; Joe Terranova is long XOM; Jon Najarian is long call spreads in FB; Jon Najarian is long call spreads in P; Jon Najarian is long call spreads in JNPR; Jon Najarian is long call spreads in NFLX; Jon Najarian is long call spreads in WLT; Jon Najarian is long call spreads in CLF; Jon Najarian is long call spreads in LEN; Jon Najarian is long call spreads in PHM; Jon Najarian is long call spreads in TOL; Jon Najarian is short puts in GLD; Jon Najarian is short puts in AGQ; Jon Najarian is long CME; Jon Najarian is long CBOE; Jon Najarian is long STSI; Jon Najarian is long GLUU; Steve Weiss is long BAC; Steve Weiss is long SODA; Mike Murphy is long AAPL; Mike Murphy is long BAC; Mike Murphy is long TGT; Mike Murphy is long TOL.

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