1-Star Stocks Doomed to Drop: Toll Brothers

Based on the aggregated intelligence of 120,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, luxury homebuilder Toll Brothers (NYSE: TOL) has received the dreaded one-star ranking. Our data has shown that one-star stocks woefully lag the market average; conversely, five-star stocks outperform the S&P by a significant margin.

With that in mind, let's take a closer look at Toll Brothers' business and see what CAPS investors are saying about the stock right now.

Toll Brothers facts

Headquarters (founded)	Horsham, Pa. (1967)
Market Cap	$2.37 Billion
Industry	Residential Construction
Trailing-12-Month Revenue	$3.63 Billion
Management	Co-Founder/CEO Robert Toll Co-Founder/Vice Chairman Bruce Toll
Return on Equity (Average, Past Five Years and TTM)	16.3% and (8.7%)
Competitors	Centex (NYSE: CTX) Pulte Homes (NYSE: PHM)
CAPS Members Bearish on TOL Also Bearish on:	Goldman Sachs (NYSE: GS) Bank of America (NYSE: BAC)
CAPS Members Bullish on TOL Also Bullish on:	DR Horton (NYSE: DHI) KB Home (NYSE: KBH)

Sources: Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS.

Over on CAPS, 357 of the 448 All-Star members who have rated Toll Brothers -- some 80% -- believe the stock will underperform the S&P 500 going forward. These Fools include dexion10 and SharpSEO, both of whom are ranked in the top 10% of our community.

Late last month, dexion10 noticed a simple bearish signal: "One of the best homebuilders - but the insider selling ... should have anyone who is long this stock scared."

In a pitch just four days earlier, SharpSEO shares that sentiment and taps Toll as being in a seriously sickly situation:

Luxury home builder in this market? Hard to see any positives here. Those hoping for a quick rebound in the housing market seem optimistic or delusional, depending on your point of view. Rate cut may be a ray of hope, but will it actually lower mortgage rates? And banks still seem to be hoarding their cash instead of lending.

There are a couple scenarios where homebuilders could bounce, of course. A big rate cut and more cash pumped into banks may eventually prompt them to lend a bit. But that's a band-aid. They may pass more incentives for home-buyers; gauze for a wound. If they start buying up houses directly, that's the equivalent of "Charging ... CLEAR!" for the housing market.

What do you think about Toll Brothers, or any other stock for that matter? Make your voice heard on Motley Fool CAPS today. More than 120,000 investors are waiting to hear what you have to say. CAPS is 100% free, so get started!