This analysis delves into the investment outlook for Toll Brothers (TOL), a prominent luxury home construction firm, as articulated in Pelican Bay Capital Management's (PBCM) fourth-quarter 2025 investor correspondence. Despite recent underperformance attributed to elevated mortgage rates and a downturn in new home sales, PBCM maintains a confident stance on the company's long-term viability. The firm's perspective is rooted in the belief of a persistent housing supply deficit and the current undervaluation of the stock. This report will explore the key factors influencing TOL's market position, including its financial metrics, recent stock movements, and its standing within broader hedge fund investment strategies, providing a comprehensive overview for potential stakeholders.
Pelican Bay Capital Management's investment strategy focuses on high-quality companies with robust financial health. In its Q4 2025 letter, PBCM disclosed that its Concentrated Value Strategy delivered an 8.5% return for the quarter, outperforming the Russell 1000 Value Index, which posted a 3.8% return. This impressive performance was largely fueled by strong showings from AI-related equities and commodity exposures. For the entire year, the Strategy achieved a 20.6% return, surpassing the Index's 15.9%. These figures underscore PBCM's capability to identify and capitalize on market opportunities, even amidst challenging conditions.
However, Toll Brothers, Inc. (NYSE: TOL), a key holding, faced headwinds during the fourth quarter of 2025. Headquartered in Fort Washington, Pennsylvania, Toll Brothers is renowned for its luxury home offerings. As of February 6, 2026, the company's stock closed at $153.28 per share. While its one-month return was a positive 4.31%, the past twelve months saw a more significant increase of 22.42%. Despite these gains, PBCM noted TOL as one of its weaker performers for the quarter, primarily alongside Builders FirstSource (BLDR), due to a challenging environment marked by high mortgage rates and a deceleration in new home purchases.
PBCM's continued bullish outlook on the homebuilding sector, and specifically on Toll Brothers, is predicated on several core convictions. The firm posits that the current market sentiment, soured by interest rate concerns, overlooks fundamental strengths. They emphasize a significant national housing shortage, suggesting that demand will eventually outstrip supply, thereby benefiting established homebuilders. Furthermore, PBCM believes that TOL's shares are trading at a considerable discount relative to their intrinsic value, presenting an attractive entry point for long-term investors. Consequently, PBCM increased its stake in both Toll Brothers and Builders FirstSource during the quarter, signaling strong confidence in their eventual recovery and growth.
Despite PBCM's bullish stance, it's worth noting that Toll Brothers, Inc. (NYSE: TOL) is not featured on the list of the 30 Most Popular Stocks Among Hedge Funds. Data from the end of the third quarter indicates that 51 hedge fund portfolios held TOL, a slight decrease from 54 in the preceding quarter. This suggests a varied perspective within the broader investment community regarding the company's immediate prospects. While acknowledging TOL's potential, some funds might be prioritizing sectors with perceived higher growth or lower risk, such as specific AI stocks, particularly those benefiting from policy shifts like Trump-era tariffs and onshoring trends. This highlights the diverse strategies employed by institutional investors and the dynamic nature of market preferences.
In summary, Pelican Bay Capital Management maintains a long-term optimistic view on Toll Brothers, Inc., despite the recent challenges posed by elevated mortgage rates and a slowdown in new home sales. Their conviction is rooted in the belief of an underlying housing shortage and the perceived undervaluation of TOL's stock. While the company's recent performance has been mixed and its presence in top hedge fund lists has slightly diminished, PBCM's decision to increase its position underscores a strategic commitment to the homebuilding sector's enduring potential. The investment landscape for Toll Brothers remains complex, influenced by macroeconomic factors and varied investor sentiment, yet offers a compelling case for those focused on intrinsic value and long-term market trends.