Toll Brothers (TOL) is more than halfway through reversing a surprising post-earnings gap up a week and a half ago. The 13.8% post-earnings gain surprised me because the message from TOL was little different than its messages in the past two earnings reports that have coincided with an extended sell-off in the stock.

Source: FreeStockCharts.com

Toll Brothers has cascaded downward ever since hitting a 14 1/2 year high in January. Before the August post-earnings pop, TOL hit a 1 1/2 year low. The stock is now struggling to hold onto 50DMA support.

Post-earnings trouble is nothing new for TOL. Ahead of its late 2017 run-up TOL experienced two hiccups that looked troubling at the time. For its May, 2017 report, TOL gapped higher and faded enough to end the day at a loss (the dreaded “gap and crap”). In August, 2017, TOL gapped down and closed lower after reporting earnings. In both cases, investors eventually firmed up their confidence and took TOL higher. December’s poor post-earnings response ended a relentless buying streak that was only once interrupted by the market’s initial disapproval of the announced tax reform plan from President Trump’s administration.

The post-earnings positivity on August 21st was the first solidly positive response for TOL since February, 2017. Yet, the TOL message and strong financial performance has been nearly consistent. TOL even initiated a dividend last year and has been spending a large amount of money buying up stock. The market’s consistent skepticism suggests a sentiment anticipating peak performance and perhaps even an imminent downturn in housing. TOL’s valuation is also at or near downturn levels with a 1.2 price/book ratio. TOL’s 9.1 trailing and 7.1 forward P/Es and a 0.8 price/sales ratio normally represent an absolute steal.

I highlight the near consistency in TOL’s message and financial performance with choice selections from the last three earnings report.

December 5, 2017: 4Q 2017

“We completed FY 2017 with our highest annual contracts and revenues in over a decade…We ended FY 2017 with a $5 billion backlog, up 27% in dollars and 25% in units from one year ago. This should result in strong revenue and earnings per share growth in FY 2018.”

For the quarter, TOL repurchased approximately 5.2M shares at a $38.48 average price and spent about $200.2M. For the full year, TOL spent $290.9M buying back 7.7M shares at an average price of $37.81/share. TOL also instituted a dividend in fiscal year (FY) 2017.

TOL’s stock gapped down 9.6% in response to these earnings and ended the day with a 7.4% loss. In another month investors regained their confidence by closing the gap down. In another week, TOL peaked at a 14 1/2 year high and just short of its all-time high.

February 27, 2018: 1Q 2018

“The Company reaffirms its previous guidance for full FY 2018 Adjusted Gross Margin of between 23.75% and 24.25%…”

For the quarter, TOL repurchased approximately 4.4M at a $47.43 average price spending about $210.0M. For the second quarter to-date, TOL spent $65.3M buying back 1.4M shares at an average price of $46.07.