Lecture Notes: Toll Brothers and the Real Estate Market

Toll Brothers Overview

Toll Brothers is a luxury home builder.
- Price points around $1 million+.
Benefited from a favorable economic environment:
- Low real estate inventory.
- Low mortgage rates locked in.
- Ability to offer competitive teaser mortgage rates.

Earnings Surge: Toll Brothers saw unusually high earnings per share (EPS).
- EPS rose from $3-$4 to $15.
Inventory Increase: High-end real estate inventory is rising.
- Example: Las Vegas shows increased inventory in million-dollar homes.
- Notable price cuts observed (e.g., Floyd Mayweather's home).
Mortgage Rates: Contrary to expectations, mortgage rates have risen since late September.
- Federal Reserve rate changes don't immediately affect mortgage rates.

Betting Against Toll Brothers:
- Position taken against Toll Brothers stock as a hedge.
- Successful put options strategy yielded over 100% gain.
- Decision to exit put positions and secure profits.
Investment Philosophy:
- Be greedy with long positions; cautious with hedges.
- Evaluate potential risks and secure profits when possible.

Dividend income supports long positions.
- Examples: Nike and Meta dividends.
- Reinvestment potential.

Company Overview:
- Well-known restaurant brand with high unit volumes.
- Cash cow business model.
Expansion Plans:
- Potential for 300 domestic locations.

North Italia:
- High-quality Italian food concept.
- Alcohol sales as a significant revenue stream.
- Expansion potential to 200 locations.
Flower Child:
- Focus on healthy, high-protein foods.
- Significant off-premise sales.
- Large-scale expansion potential (500-1000 locations).

Testing new brands:
- Culinary Dropout, Blanco, etc.
- Assessing potential for regional and national expansion.

Strong performance during the 2009-2010 financial crisis.
- Resilient earnings and free cash flow.