Spec vs Build-to-Order: Which Model Will Define Toll Brothers' Future?

Toll Brothers, Inc. TOL continues to refine its operating strategy as the housing market navigates affordability challenges, shifting buyer preferences, and fluctuating mortgage rates. At the center of its approach lies a strategic balance between speculative (spec) construction and build-to-order homes—a mix that could define the builder’s trajectory in the coming years.Historically, Toll Brothers operated with just 10–15% of homes built on spec. Today, that figure has surged to roughly 50%. The shift reflects evolving consumer demand, particularly among affluent millennials and move-up buyers who prioritize speed and convenience over lengthy design cycles. Toll Brothers’ spec homes are not simple stock models; many are curated with design packages that allow personalization, blending efficiency with the premium experience that underpins its luxury brand.This pivot brings tangible advantages. Spec homes reduce construction cycle times, improve capital efficiency, and allow Toll Brothers to react nimbly to market demand. In the third quarter of fiscal 2025, the company had 3,200 specs in process and 1,800 permits ready, giving it flexibility as rates ease and demand revives. Meanwhile, build-to-order homes—often tied to premium lots and significant upgrades—remain vital for driving margins, with some topping 30%.The balance may never return to the “old days” of 90% build-to-order. Instead, a 40–60% spec mix seems more sustainable, offering resilience in uncertain markets. With luxury ASPs above $1 million and a backlog priced at $1.16 million, Toll Brothers is positioned to leverage both models to preserve profitability and capture demand.TOL’s Competitors in the Spec vs Build-to-Order DebateTwo major homebuilding peers—Lennar Corporation LEN and D.R. Horton, Inc. DHI—offer useful contrasts to Toll Brothers in the evolving balance between spec and build-to-order models.Lennar, one of the largest U.S. builders, has long leaned heavily on a spec-driven approach. Its focus on quick delivery and standardized product lines makes Lennar highly efficient in capturing volume demand, particularly in entry-level and move-up segments. By contrast, D.R. Horton, the nation’s largest builder by volume, also emphasizes spec production to maintain scale but has diversified with higher-end offerings in certain markets. D.R. Horton has demonstrated that scale-driven spec building can still coexist with premium positioning. Compared to these peers, Toll Brothers targets the luxury niche, where its curated spec homes complement traditional build-to-order offerings. The contrast underscores how Lennar, D.R. Horton, and Toll Brothers are each shaping their future models around different market segments.TOL’s Price Performance, Valuation and EstimatesToll Brothers’ shares have gained 29.6% in the past three months, outperforming the Zacks Building Products - Home Builders industry, broader Zacks Construction sector and S&P 500, as shown below.TOL Price PerformanceImage Source: Zacks Investment ResearchIn terms of its forward 12-month price-to-earnings ratio, TOL stock is trading at 9.95, down from the industry’s 12.44.P/E (F12M) Image Source: Zacks Investment ResearchOver the past 30 days, the Zacks Consensus Estimate for TOL’s 2025 earnings per share has declined to $13.86 from $13.95. The estimated figure indicates a 7.7% decline from the year-ago profit level. Again, the consensus estimate for fiscal 2025 revenues implies 0.2% growth. Image Source: Zacks Investment ResearchToll Brothers currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Radical New Technology Could Hand Investors Huge GainsQuantum Computing is the next technological revolution, and it could be even more advanced than AI.While some believed the technology was years away, it is already present and moving fast. Large hyperscalers, such as Microsoft, Google, Amazon, Oracle, and even Meta and Tesla, are scrambling to integrate quantum computing into their infrastructure.Senior Stock Strategist Kevin Cook reveals 7 carefully selected stocks poised to dominate the quantum computing landscape in his report, Beyond AI: The Quantum Leap in Computing Power.Kevin was among the early experts who recognized NVIDIA's enormous potential back in 2016. Now, he has keyed in on what could be "the next big thing" in quantum computing supremacy. Today, you have a rare chance to position your portfolio at the forefront of this opportunity.See Top Quantum Stocks Now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Toll Brothers Inc. (TOL): Free Stock Analysis Report Lennar Corporation (LEN): Free Stock Analysis Report D.R. Horton, Inc. (DHI): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks