(This is an excerpt from an article I originally published on Seeking Alpha on August 27, 2015. Click here to read the entire piece.)
Toll Brothers (TOL) had the misfortune of reporting its third quarter 2015 earnings in the middle of a severe market sell-off. {snip}
Source: FreeStockCharts.com
The selling in TOL plunged the stock briefly below its 200-day moving average (DMA). Just as I did with iShares US Home Construction (ITB), I accelerated my plans to rebuild a position in TOL after having just trimmed it from my portfolio of homebuilders a whole 13% ago. The selling was much swifter and deeper than I could have expected. I did not see anything in the earnings report that warranted such a harsh response. {snip}
A year-over-year decline in earnings and revenue hit this year’s third quarter report although the drop was already anticipated. Net income fell 32%. Revenue fell 3% in dollars and 2% in units. As a result, gross margin fell to 19.8% from last year’s 22.7%. The difference significantly narrowed to 25.6% versus 26.1% after taking into account interest, impairments, and changes in reserves.
Going forward, TOL’s prospects did not suffer the kind of downgrade implied by the plunge in its stock price. {snip}
The Q&A session with analysts did not produce any particular points of concern either. {snip}
Source: NASDAQ.com
Be careful out there!
Full disclosure: long call options on ITB and TOL
(This is an excerpt from an article I originally published on Seeking Alpha on August 27, 2015. Click here to read the entire piece.)